<SEC-DOCUMENT>0001144204-13-027528.txt : 20130509
<SEC-HEADER>0001144204-13-027528.hdr.sgml : 20130509
<ACCEPTANCE-DATETIME>20130509172929
ACCESSION NUMBER:		0001144204-13-027528
CONFORMED SUBMISSION TYPE:	S-1
PUBLIC DOCUMENT COUNT:		4
FILED AS OF DATE:		20130509
DATE AS OF CHANGE:		20130509

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			Venaxis, Inc.
		CENTRAL INDEX KEY:			0001167419
		STANDARD INDUSTRIAL CLASSIFICATION:	IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835]
		IRS NUMBER:				841553387
		STATE OF INCORPORATION:			CO
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		S-1
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-188498
		FILM NUMBER:		13830232

	BUSINESS ADDRESS:	
		STREET 1:		1585 S. PERRY STREET
		CITY:			CASTLE ROCK
		STATE:			CO
		ZIP:			80104
		BUSINESS PHONE:		(303) 794-2000

	MAIL ADDRESS:	
		STREET 1:		1585 S. PERRY STREET
		CITY:			CASTLE ROCK
		STATE:			CO
		ZIP:			80104

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AspenBio Pharma, Inc.
		DATE OF NAME CHANGE:	20051110

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ASPENBIO INC
		DATE OF NAME CHANGE:	20020213
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>v344449_s1.htm
<DESCRIPTION>FORM S-1
<TEXT>
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<P STYLE="margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; color: rgb(70,83,97)"><B>As filed with the Securities and Exchange
Commission on May 9, 2013</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; color: rgb(70,83,97)"><B>Registration No. 333-______</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>UNITED STATES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>SECURITIES AND EXCHANGE COMMISSION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>WASHINGTON, D.C. 20549</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>FORM S-1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">(Exact name of registrant as specified in
its charter)</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 32%; text-align: center"><B>Colorado</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%; text-align: center"><B>2835</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%; text-align: center"><B>84-1553387</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">(State or other jurisdiction of</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(Primary Standard Industrial</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">(I.R.S. Employer Identification</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">incorporation or organization)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Classification Code Number)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Number)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>1585 South Perry Street</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Castle Rock, CO 80104</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>(303) 794-2000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">(Address, including zip code, and telephone
number, including area code,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">of registrant&rsquo;s principal executive
offices)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Stephen T. Lundy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>President and Chief Executive Officer</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>1585 South Perry Street</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Castle Rock, CO 80104</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>(303) 794-2000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">(Name, address, including zip code, and
telephone number,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">including area code, of agent for service)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Copies to:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; text-align: center"><B>Mary J. Mullany, Esq.</B></TD>
    <TD STYLE="width: 50%; text-align: center"><B>Douglas R. Wright, Esq.</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center"><B>Ballard Spahr LLP</B></TD>
    <TD STYLE="text-align: center"><B>Faegre Baker Daniels LLP</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center"><B>1735 Market Street, 51st Floor</B></TD>
    <TD STYLE="text-align: center"><B>3200 Wells Fargo Center</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center"><B>Philadelphia, PA 19103</B></TD>
    <TD STYLE="text-align: center"><B>1700 Lincoln Street</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center"><B>Telephone: (215) 665-8500</B></TD>
    <TD STYLE="text-align: center"><B>Denver, CO 80203</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center"><B>Facsimile: (215) 864-8999</B></TD>
    <TD STYLE="text-align: center"><B>Telephone: (303) 607-3500</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center"><B>Facsimile: (303) 607-3600</B></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC:</B> As soon as practicable after this Registration Statement becomes effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. <FONT STYLE="font-family: Wingdings">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of &ldquo;large accelerated
filer,&rdquo; &ldquo;accelerated filer,&rdquo; and &ldquo;smaller reporting company&rdquo; in Rule 12b-2 of the Exchange Act.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%">Large accelerated filer</TD>
    <TD STYLE="width: 10%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD STYLE="width: 40%">Accelerated filer</TD>
    <TD STYLE="width: 10%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer (Do not check if smaller reporting company)</TD>
    <TD><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD>Smaller reporting company</TD>
    <TD><FONT STYLE="font-family: Wingdings">x</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">Title of Each Class of <BR>Securities to be Registered</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Proposed Maximum<BR> Aggregate Offering<BR> Price(1)</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Amount of Registration Fee</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 60%">Common Stock, no par value per share (2)(3)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 17%; text-align: right">23,000,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 17%; text-align: right">3,137.20</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 11pt">Total Registration Fee</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">23,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,137.20</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22pt; text-indent: -22pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 22pt">(1)</TD><TD>Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended (the &ldquo;Securities Act&rdquo;).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22pt; text-indent: -22pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 22pt">(2)</TD><TD>Includes shares of common stock that may be issued upon exercise of a 30-day option granted to the underwriter to cover over-allotments,
if any.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 22pt; text-indent: -22pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 22pt">(3)</TD><TD>Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number
of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations
or other similar transactions.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>The Registrant hereby amends this Registration Statement
on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="color: rgb(160,50,69); font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>The information in this prospectus is not complete
and may be changed. We may not sell these securities under this registration statement until the registration statement filed with
the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell any securities, and we are
not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. </B></P>

<P STYLE="color: red; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="color: rgb(160,50,69); font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SUBJECT TO COMPLETION, DATED
MAY 9, 2013</B></P>

<P STYLE="color: red; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><U>PRELIMINARY PROSPECTUS</U></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>VENAXIS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>$ </B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom; text-align: center">
    <TH STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left; color: rgb(70,83,97)"><B>Common Stock</B></TH>
    <TH STYLE="font: 18pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><IMG SRC="logo.jpg" ALT=""></TH></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We are offering <FONT STYLE="color: #465361">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; of </FONT>shares
of our common stock. <FONT STYLE="color: #465361">Our common stock is quoted on the NASDAQ Capital Market under the trading symbol
&ldquo;APPY.&rdquo; The last sale price of our common stock on May 8, 2013, as reported by the NASDAQ Capital Market, was $1.72
per share. </FONT></P>

<P STYLE="color: #000033; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Investing in our common stock involves risk.&nbsp;&nbsp;Please
read carefully the section entitled &ldquo;Risk Factors&rdquo; beginning on page 5 of this prospectus. </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved the securities described herein or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><FONT STYLE="text-underline-style: double"><B>&nbsp;</B></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Per Share</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%">Public Offering Price</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Underwriting Discounts and Commission</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds to Us, Before Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><FONT STYLE="text-underline-style: double"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have granted the underwriter the right, exercisable within
a 30-day period, to purchase up to an additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock solely to cover over-allotments. If the underwriter
exercises its over-allotment right in full, the total underwriting discounts and commissions payable by us will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , and the
total proceeds to us, before expenses, will be $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have agreed to reimburse the underwriter for fees incurred
by it in connection with this offering, up to a maximum amount of $150,000. See &ldquo;Underwriting&rdquo; beginning on page 65
of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The underwriter expects to deliver our shares to purchasers
in the offering on or about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Piper Jaffray</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">Prospectus dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,&nbsp;2013.<B> </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>TABLE OF CONTENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 93%; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="width: 1%; text-align: center; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD STYLE="width: 6%; text-align: center; border-bottom: Black 1pt solid"><B>Page</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD COLSPAN="3" STYLE="text-align: center"><B>Contents</B></TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Prospectus Summary</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Risk Factors</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">5</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Special Note Regarding Forward&minus;Looking Statements</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">17</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Use of Proceeds</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">18</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Dividend Policy</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">18</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Capitalization</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">19</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Dilution</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">20</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Common Stock Price Range</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">21</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Selected Financial Data</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">22</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">23</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Business </TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">32</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Properties</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">43</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Legal Proceedings</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">43</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Management</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">45</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Executive Compensation</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">51</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Equity Compensation Plan Information</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">58</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Certain Relationships and Related Person Transactions</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">58</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Security Ownership of Certain Beneficial Owners and Management</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">60</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Description of Securities</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">62</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Material U.S. Federal Income Tax Consequences To Non-U.S. Holders</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">62</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Underwriting</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">65</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Legal Matters</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">70</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Experts</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">70</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Where You Can Find More Information</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">70</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">Index to Financial Statements</TD>
    <TD STYLE="vertical-align: top; text-align: right">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">F-1</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">You should rely only on the information contained in this prospectus
or in any free writing prospectus we may authorize to be delivered or made available to you. We have not authorized anyone to provide
you with different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions
where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of shares of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">For investors outside the United States: We have not and the
underwriter has not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession
of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common
stock and the distribution of this prospectus outside the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>PROSPECTUS SUMMARY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the information you should consider before investing in our securities. You
should read this entire prospectus carefully, especially the &ldquo;Risk Factors&rdquo; section beginning on page 5 and our financial
statements and the related notes appearing at the end of this prospectus, before making an investment decision.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>As used in this prospectus, unless the context otherwise
requires, references to &ldquo;we,&rdquo; &ldquo;us,&rdquo; &ldquo;our,&rdquo; &ldquo;Venaxis&rdquo; and &ldquo;the Company&rdquo;
refer to the operations of Venaxis, Inc.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Venaxis is focused on advancing products that address unmet
human diagnostic needs. We were formed in 2000 to produce purified proteins for diagnostic applications. To date, we have leveraged
our science and technology to advance development of our <I>APPY1</I> product candidate and to develop animal health-related assets,
including intellectual property.&nbsp;In 2012, we out-licensed these animal health-related assets and changed our name to Venaxis,
Inc. from AspenBio Pharma, Inc. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our business strategy is to focus on products and technologies
that we believe have attractive worldwide markets and significant product margin potential. Our acute appendicitis test, <I>APPY1</I>,
which is our current primary focus, meets these objectives. We may also pursue technologies under &ldquo;in-licensing&rdquo; agreements
with third parties such as universities, researchers or individuals, add value by advancing the stage of research and development
on the technologies through proof of concept, and then either &ldquo;out-license&rdquo; to global diagnostic companies or continue
with in-house development towards regulatory approval, product introduction and launch.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>APPY1</I> is a multi-marker blood test panel intended to
be used by emergency department physicians to aid them in the evaluation of possible acute appendicitis in children, adolescent
and young adult patients (ages 2 &ndash; 20) who present with abdominal pain. <I>APPY1</I> is under the regulatory jurisdiction
of the FDA. We are not aware of any blood test that is cleared by the FDA for the purpose of aiding in ruling out appendicitis,
and are not aware of any competitors in this area. We expect that a principal benefit of <I>APPY1</I> will be to provide physicians
with objective information that will aid in the identification of patients at low risk for appendicitis, and thereby potentially
reduce the exposure to radiation from, and the expense associated with, computed tomography (CT) scans that are often performed
on these patients. In addition, we believe the test can potentially save significant costs through improved patient throughput
in emergency departments. We have completed a design freeze for our <I>APPY1</I> product candidate and, in early 2013, commenced
a 2,000 patient, multi-center prospective pivotal clinical trial to be used in connection with our application for FDA clearance.&nbsp;&nbsp;We
also have commenced initial marketing and commercialization activities for our CE marked <I>APPY1</I> products in the European
Union (E.U.).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Recent Developments</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>European Distribution Agreements. </B>We have entered into
commercial development agreements with a number of diagnostic test distributors in the U.K., Italy, France, Germany, Turkey&nbsp;and
the Benelux countries. Under these commercial development agreements, we are working to roll out our market development program
for <I>APPY1</I>, including identification of initial hospitals and key opinion leaders in the E.U. countries in which we
are focused. Our strategy is to leverage the experience of key opinion leaders in select hospitals in order to generate additional
meaningful, multinational field data for <I>APPY1</I> products. We have received initial stocking orders for our <I>APPY1</I> products
under these relationships.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Building Mortgage
Refinancing</B>. On May 9, 2013, we entered into a Debt Modification Agreement (the Modification Agreement) with FirstBank
(the Bank) to refinance an outstanding mortgage loan with the Bank for which the remaining principal balance of approximately
$1.6 million was due in July 2013. The Modification Agreement extends the maturity date to April 2018 and reduces the
interest rate to a fixed interest rate of 3.95% from a variable rate equal to 1% over The Wall Street Journal Prime Rate
(with a minimum rate of 7%). The loan terms include a payment amortization period of fifteen years, with a balloon maturity
at five years. The portion of the building mortgage loan guaranteed by the U.
S. Small Business Administration (SBA), which is approximately 34% of the current loan total, remains unaffected by the
Modification Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

</DIV>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Board Appointment. </B>Effective May 1, 2013, Stephen A.
Williams, M.D., Ph.D., the Chief Medical Officer at SomaLogic, Inc., joined our Board of Directors.&nbsp;&nbsp;Dr. Williams has
significant experience in diagnostic imaging and biomarker discovery.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Risk Factors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our business is subject to numerous risks and uncertainties.
We face many risks inherent in our business and our industry generally, including the risks and uncertainties described below.
You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the
heading &ldquo;Risk Factors,&rdquo; prior to making an investment in our securities. Among these important risks are the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 95%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 7%; padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="width: 5%; padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="width: 88%; padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">We are currently a single product company that is heavily dependent on the successful development and commercialization of the <I>APPY1</I> product, and if we encounter delays or difficulties in the development of this product, our business could be harmed.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">If we fail to obtain FDA clearance, which we expect to proceed under a 510(k) <I>de novo</I> classification path, we cannot market our product in the United States.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to delay, scale back or eliminate our product development activities or may be unable to continue our business.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">We have very limited sales and marketing experience and limited sales capabilities, which may make commercializing our products difficult.</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Company Information</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We were organized as a Colorado corporation on July 24, 2000.
Our principal executive offices are located at 1585 S. Perry Street, Castle Rock, Colorado 80104. Our phone number is (303) 794-2000
and our Internet address is <U>www.venaxis.com</U>. The information on our website or any other website is not incorporated by
reference in this prospectus and does not constitute a part of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

</DIV>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>The Offering</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 95%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48%">Common stock offered by us</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 48%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Common stock to be outstanding after this offering</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Over-allotment option</TD>
    <TD>&nbsp;</TD>
    <TD>Up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock. The option is exercisable, in whole or in part, for a period of 30 days from the date of this prospectus.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Use of proceeds</TD>
    <TD>&nbsp;</TD>
    <TD>We intend to use the net proceeds from this offering for general corporate purposes, including capital to fund our operations at least through the FDA clearance process for <I>APPY1</I> and to fund the initial commercialization activities in the U.S. and the E.U.&nbsp;&nbsp;See &ldquo;Use of Proceeds&rdquo; for additional information.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Risk factors</TD>
    <TD>&nbsp;</TD>
    <TD>You should read the &ldquo;Risk Factors&rdquo; section and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Nasdaq Capital Market symbol</TD>
    <TD>&nbsp;</TD>
    <TD>Our common stock is listed on the Nasdaq Capital Market under the symbol &ldquo;APPY.&rdquo; </TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The number of shares of our common stock to be outstanding after
this offering set forth above is based on 9,954,380 shares of our common stock outstanding as of May 6, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Unless otherwise indicated, all information in this prospectus,
including the number of shares of our common stock to be outstanding after this offering set forth above, excludes the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 95%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0; width: 7%">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0; width: 5%"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0; width: 88%"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">1,226,899 shares of common stock issuable upon the exercise of outstanding options granted under our stock option plans at a weighted average exercise price of $8.94 per share;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">597,004 shares of common stock issuable upon exercise of options granted outside of our stock option plans and warrants at a weighted average exercise price of $4.87 per share;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">260,306 shares of common stock available for future issuance under our stock option plans; and</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Symbol; color: #465361">&middot;</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of common stock issuable upon the exercise of the underwriter&rsquo;s over&minus;allotment option.</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>SUMMARY FINANCIAL DATA</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following tables summarize our financial data for the periods
presented.&nbsp;&nbsp;The summary statements of operations data for the years ended December 31, 2012, 2011 and 2010 have been
derived from our audited financial statements, which are included in this prospectus.&nbsp;The summary statements of operations
data for the three months ended March 31, 2013 and 2012 and the balance sheet data as of March 31, 2013 have been derived from
interim unaudited financial statements, which are included in this prospectus. The historical results are not necessarily indicative
of the results to be expected for any future periods.&nbsp;&nbsp;You should read this data together with the financial statements
and related notes included elsewhere in this prospectus, as well as &ldquo;Management&rsquo;s Discussion and Analysis of Financial
Condition and Results of Operations&rdquo; and the other financial information included elsewhere in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>STATEMENTS OF OPERATIONS DATA:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 95%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">For the Fiscal Year Ended December 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended<BR> March 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">Summary Statements of Operations Data:</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 45%; color: rgb(70,83,97); text-align: left">Total revenues</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 8%; color: rgb(70,83,97); text-align: right">42,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 8%; color: rgb(70,83,97); text-align: right">219,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 8%; color: rgb(70,83,97); text-align: right">370,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 8%; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 8%; color: rgb(70,83,97); text-align: right">7,300</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Net loss</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(9,212,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(10,214,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(13,338,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,802,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,938,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Basic and diluted net loss per share (1) (2)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.84</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(7.61</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(10.17</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(0.28</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.21</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Weighted average shares outstanding (2)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,996,827</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,341,379</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,310,956</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">9,954,380</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,608,146</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 95%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">(1)</FONT></TD>
    <TD STYLE="width: 96%; padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">See
    &ldquo;Note 1.&nbsp;&nbsp;Organization and Summary of Significant Accounting Policies&rdquo; of Notes to our Financial
    Statements     for a description of the computation of loss per share.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="padding: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">(2)</FONT></TD>
    <TD STYLE="padding: 0; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">The basic and diluted net loss per share and weighted average shares outstanding used in the net loss per share calculation have been adjusted to reflect the one-for-five reverse stock split that was effected on July 28, 2011 and the one-for-six reverse stock split that was effected on June 20, 2012.</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>BALANCE SHEET DATA:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center">As of</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); text-align: center">As Adjusted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center">March 31,</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center">March 31,</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013 (1)</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Summary Balance Sheet Information:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 64%; color: rgb(70,83,97); text-align: left">Current assets</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 15%; color: rgb(70,83,97); text-align: right">9,554,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 15%; color: rgb(70,83,97); text-align: right"><FONT STYLE="font-size: 10pt; color: rgb(70,83,97)"></FONT></TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Total assets</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">13,594,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Long term liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,001,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;<FONT STYLE="font-size: 10pt; color: rgb(70,83,97)"></FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Total liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,221,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;<FONT STYLE="font-size: 10pt; color: rgb(70,83,97)"></FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Total stockholders&rsquo; equity</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,373,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="font-size: 10pt; color: rgb(70,83,97)"></FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 95%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 4%; padding: 0; font-size: 10pt; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">(1)</FONT></TD>
    <TD STYLE="width: 96%; padding: 0; font-size: 10pt; text-indent: 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif; color: #465361">As adjusted amounts give effect to the issuance and sale of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock by us in this offering at an assumed public offering price of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and the application of the net proceeds of the offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under &ldquo;Use of Proceeds.&rdquo; See &ldquo;Use of Proceeds&rdquo; and &ldquo;Capitalization.&rdquo;</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;&nbsp;</P>

</DIV>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Investing in our securities involves a high degree of risk.
You should carefully consider the risks described below, together with all of the other information included in this prospectus,
before making an investment decision. Our business, financial condition and results of operations could be materially and adversely
affected by any of these risks or uncertainties. In that case, the market price of our common stock could decline, and you may
lose all or part of your investment.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Risks Related to Our Business</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We are currently a single product company that is heavily
dependent on the successful development and commercialization of the APPY1 product, and if we encounter delays or difficulties
in the development of this product, our business could be harmed. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our success is heavily dependent upon the successful development
of the <I>APPY1</I> product. Our business could be materially harmed if we encounter difficulties in the development of this product,
such as:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>delays in the design, enrollment, implementation or completion of the current <I>APPY1</I> clinical trial;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>less than desired results of the <I>APPY1</I> clinical trial; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>an inability to follow our current development strategy for obtaining regulatory approval from the FDA because of changes in
the regulatory approval process.&nbsp;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>The commercial success of our products will depend upon
the degree of market acceptance by physicians, hospitals, third-party payors, and others in the medical community. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The <I>APPY1</I> product and any other products that we ultimately
bring to the market, if they receive approval, may not gain market acceptance by physicians, hospitals, third-party payors or others
in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product
revenue and we may not become profitable. The degree of market acceptance of our products, if approved for commercial sale, will
depend on a number of factors, including:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the efficacy and potential advantages over alternative treatments;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the ability to offer our products for sale at competitive prices;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the willingness of the target population to accept and adopt our products;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the strength of marketing and distribution support and the timing of market introduction of competitive products; and&nbsp;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>publicity concerning our products or competing products and treatments.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Even if a potential product displays a favorable profile, market
acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party
payors on the benefits of our products may require significant resources and may never be successful. Such efforts to educate the
marketplace may require more resources than are required by conventional technologies marketed by our competitors.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>If we fail to obtain FDA clearance, which we expect to
proceed under a 510(k) de novo classification path, we cannot market our product in the United States.&nbsp;&nbsp;An alternative
path, which is longer and more restrictive, would be required.&nbsp;&nbsp;&nbsp;Such a process, called a premarket approval (PMA)
would place our product in FDA&rsquo;s Class III.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Therapeutic or human diagnostic products require FDA clearance
(or approval or licensing) prior to marketing and sale. This applies to our ability to market, directly or indirectly, our <I>APPY1</I>
acute appendicitis test. As a new product, this test must undergo lengthy and rigorous development testing and other extensive,
costly and time-consuming procedures mandated by the FDA. In order to obtain required FDA clearance we must finalize development
of our product, product labeling and successfully complete clinical testing. This process has taken, and will continue to take,
a substantial amount of time and resources to complete. We may elect to delay or cancel our anticipated regulatory submissions
for new indications for our proposed new products for a number of reasons. There is no assurance that any of our strategies for
obtaining FDA clearance or approval in an expedient manner will be successful, and FDA clearance is not guaranteed. The actual
timing of such completion, submission and clearance could also impact our ability to realize market value from such products. If
we do achieve FDA clearance or approval, it could subsequently be suspended or revoked, or we could be fined, based on a failure
to continue to comply with ongoing regulatory requirements and standards. Similar regulatory approval or ongoing requirements and
contingencies will also be encountered in major international markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If we fail to obtain FDA clearance or approval for our human
diagnostic products, we will not be able to market and sell our products in the United States. As a result, we would not be able
to recover the time and resources spent on research and development of such products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We have incurred losses since inception, and we expect
to incur significant losses in the foreseeable future and may never become profitable. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Since our inception in 2000, we have incurred significant losses
and negative cash flows from operations. We incurred net losses of $9,212,000 in 2012, $10,214,000 in 2011 and $13,338,000 in 2010
and $2,802,000 for the three months ended March 31, 2013. As of March 31, 2013, we had an accumulated deficit of $<FONT STYLE="color: #465361">77,035,000</FONT>,
and anticipate incurring additional losses for at least the next several years. In order to achieve profitability, we must develop
products and technologies that can be commercialized by us or through our existing or future collaborations. Our ability to generate
revenues and become profitable will depend on our ability, alone or with potential collaborators, to timely, efficiently and successfully
complete the development of our products. We cannot assure you that we will ever earn revenue or that we will ever become profitable.
If we sustain losses over an extended period of time, we may be unable to continue our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We expect to continue to incur operating losses at least until
2015. If capital requirements vary materially from those currently planned, we may require additional capital sooner than expected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We will need substantial additional funding to develop
our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to delay,
scale back or eliminate our product development activities or may be unable to continue our business. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have historically needed to raise capital to fund our operating
losses, including development expenses. The development of our product candidates will require a commitment of substantial funds
to conduct costly and time-consuming research, which may include preclinical and clinical testing, necessary to obtain regulatory
approvals and bring our products to market. Net cash used in our operations was $5,489,000 in 2012, $8,333,000 in 2011 and $10,707,000
in 2010, and $2,472,000 for the three months ended March 31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">At March 31, 2013, we had $<FONT STYLE="color: #465361">9,268,000
</FONT>of cash, cash equivalents, and short-term investments. While we believe that we have sufficient funds to continue our operations
through the completion of our current clinical trial for the <I>APPY1</I> product, we expect that we will require additional capital
to complete the FDA clearance process for <I>APPY1 </I>and to fund the initial commercialization activities in the U.S. and the
E.U. and for future product development, both future generation <I>APPY1</I> and other diagnostic products. We cannot be certain
that additional capital will be available on acceptable terms or at all. In recent years, it has been difficult for companies to
raise capital, especially in light of the state of the current financial markets which could impact the timing, terms and other
factors in our attempts to raise capital. To the extent we raise additional capital through the sale of equity securities, the
ownership position of our existing shareholders could be substantially diluted and the market price of our common stock could decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Failure to successfully address ongoing liquidity requirements
will have a material adverse effect on our business. If we are unable to obtain additional capital on acceptable terms when needed,
we may be required to take actions that harm our business and our ability to achieve cash flow in the future, including possibly
the surrender of our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing
operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>The successful development of a medical device such as
our acute appendicitis test is highly uncertain and requires significant financial expenditures and time.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Successful development of medical devices is highly uncertain.
Products that appear promising in research or development may be delayed or fail to reach later stages of development or the market
for several reasons, including failure to obtain regulatory clearance or approval, manufacturing costs, pricing and reimbursement
issues, or other factors that may render the product uneconomical to commercialize. In addition, success in pilot trials does not
ensure that larger-scale clinical trials will be successful. Evolutions in development from early stage products to later state
products may require additional testing or analysis. Clinical results are frequently susceptible to varying interpretations that
may delay, limit, or prevent regulatory approvals. The length of time necessary to complete clinical trials and to submit an application
for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. If
our large-scale clinical trials for a product are not successful, we will not recover our substantial investments in that product.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Factors affecting our research and development productivity
and the amount of our research and development expenses include, but are not limited to, the number of patients required to be
enrolled, site costs (including site overhead) and the outcome of required clinical trials to be conducted by us and/or our collaborators.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may not be able to successfully launch sales of our
products in the European Union countries or elsewhere outside of the U.S.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We obtained CE marking for our <I>APPY1</I> products in January
2013.&nbsp;&nbsp;We have launched initial commercialization and marketing activities in the U.K., Italy, France, Germany, Turkey&nbsp;and
the Benelux countries.&nbsp;&nbsp;Our strategy is to leverage the experience of key opinion leaders in select hospitals in such
countries in order to generate additional meaningful, multinational field data for <I>APPY1</I> products.&nbsp;&nbsp;We may not
be able to implement such strategy on a timely basis, and may encounter the uncertainties and delays in adoption that accompany
new diagnostic testing alternatives, pricing pressure for our products and difficulties developing the relationships necessary
to conduct business outside of the United States. We also will rely on third parties to sell our products internationally. In these
instances, our future revenues will be materially dependent upon the success of the efforts of these third parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Clinical trials are expensive and we cannot assure that
we will be able to complete our clinical trial program successfully within any specific time period, or if such clinical trial
takes longer to complete than we project, our ability to execute our current business strategy will be adversely affected.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Conducting clinical trials is a lengthy, time-consuming and
expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through clinical
trials the safety and effectiveness of our products. We have incurred, and we will continue to incur, substantial expense for,
and devote a significant amount of time to, product development, pilot trial testing, clinical trials and regulated, compliant
manufacturing processes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Even if completed, we do not know if these trials will produce
statistically significant or clinically meaningful results sufficient to support an application for marketing approval. Whether
or not and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to advance the rate
of patient enrollment, and the rate to collect, clean, lock and analyze the clinical trial database.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Patient enrollment in trials is a function of many factors,
including the design of the protocol, the size of the patient population, the proximity of patients to and availability of clinical
sites, the eligibility criteria for the study, the perceived risks and benefits of the product candidate under study and of the
control, if any, the medical investigators&rsquo; efforts to facilitate timely enrollment in clinical trials, the patient referral
practices of local physicians, the existence of competitive clinical trials, and whether other investigational, existing or new
products are available or approved for the indication. If we experience delays in patient enrollment and/or completion of our clinical
trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical
trials on a cost-effective or timely basis. Accordingly, we may not be able to complete the clinical trials within an acceptable
time frame, if at all. If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the
statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being
tested in such clinical trial is safe and effective. Further, if we or any third party have difficulty enrolling a sufficient number
of patients in a timely or cost-effective manner to conduct clinical trials as planned, or if enrolled patients do not complete
the trial as planned, we or a third party may need to delay or terminate ongoing clinical trials, which could negatively affect
our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We face competition in the biotechnology and pharmaceutical
industries and new diagnostic tests, which may be developed by others, could impair our ability to maintain and grow our business
and remain competitive.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We face competition in the development, manufacture, marketing
and commercialization of diagnostic products from a variety of sources, such as academic institutions, government agencies, research
institutions and biotechnology and pharmaceutical companies, including other companies with similar diagnostic or <I>in vitro</I>
testing technologies, including those with platform technologies. These platform technologies vary from very large analyzer systems
to smaller and less expensive instruments similar to ours. These competitors are working to develop and market other diagnostic
tests, systems, products and other methods of detecting, preventing or reducing disease.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The development of new technologies or improvements in current
technologies for diagnosing acute appendicitis, including CT imaging agents and products that would compete with our acute appendicitis
test could have an impact on our ability to sell the acute appendicitis tests or the sales price of the tests. This could impact
our ability to market our tests and/or secure a marketing partner, both of which could have a substantial impact on the value of
our acute appendicitis products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Among the many experimental diagnostics and therapies being
developed around the world, there may be diagnostics and therapies unknown to us that may compete with our technologies or products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Many of our potential competitors have much greater capital
resources, manufacturing, research and development resources and production facilities than we do. Many of them may also have more
experience than we have in preclinical testing and clinical trials of new diagnostic tests and in obtaining FDA and foreign regulatory
approvals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Major technological changes can occur quickly in the biotechnology
industry, and the development of technologically improved or different products or technologies may make our product candidates
or platform technologies obsolete or noncompetitive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Physicians, patients, third party payors and the medical community
may be slow to adopt, and may not accept or utilize our acute appendicitis test products when and if approved. If our products,
if and when approved, do not achieve significant market acceptance, our business, results of operations and financial condition
may be materially adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We have very limited sales and marketing experience and
limited sales capabilities, which may make commercializing our products difficult.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We currently have very little marketing experience and limited
sales capabilities. Therefore, in order to commercialize our products, once approved, we must either develop our own marketing
and distribution sales capabilities or consider collaborating with a third party to perform these functions. We may, in some instances,
rely significantly on sales, marketing and distribution arrangements with collaborative partners and other third parties. In these
instances, our future revenues will be materially dependent upon the success of the efforts of these third parties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We may not be able to attract and retain qualified personnel
to serve in our sales and marketing organization, to develop an effective distribution network or to otherwise effectively support
our commercialization activities. The cost of establishing and maintaining a sales and marketing organization may exceed its cost
effectiveness. If we fail to develop sales and marketing capabilities, if sales efforts are not effective or if costs of developing
sales and marketing capabilities exceed their cost effectiveness, our business, results of operations and financial condition would
be materially adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>If we successfully obtain FDA clearance or approval to
market our acute appendicitis test, we (or our vendors) may experience manufacturing problems resulting in shortages or delays
in production that could limit the near term growth of our revenue.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our ability to successfully market the acute appendicitis test,
once approved, will partially depend on our ability to obtain and manufacture sufficient quantities of the finished tests from
qualified GMP suppliers. While we have identified and qualified suppliers, their ability to produce tests or component parts in
sufficient quantities to meet possible demand may cause delays in securing products or could force us to seek alternative suppliers.
The need to locate and use alternative suppliers could also cause delivery delays for a period of time. Delays in finalizing and
progressing under agreements with cGMP facilities may delay our FDA clearance process and potentially delay sales of such products.
In addition, we may encounter difficulties in production due to, among other things, the inability to obtain sufficient amounts
of raw materials, components or finished goods inventory and quality control issues with raw materials, components or finished
goods. These difficulties could reduce sales of our products, increase our costs, or cause production delays, all of which could
damage our reputation and hurt our financial condition. To the extent that we enter into manufacturing arrangements with third
parties, we will depend on them to perform their obligations in a timely manner and in accordance with applicable government regulations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may not achieve future revenue from the out-licensing
of our animal health assets.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In 2012, we entered into an exclusive license agreement with
a third party to license all of our animal health assets in return for license fees, milestone and royalty payments. If product
development efforts using our animal health assets are not successful in achieving commercial products, we may not receive all
anticipated milestone and royalty payments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our results of operations could be affected by our royalty
payments due to third parties.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Any revenues from products under development will likely be
subject to royalty payments under licensing or similar agreements. Major factors affecting these payments include, but are not
limited to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>coverage decisions by governmental and other third-party payors;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our ability to achieve meaningful sales of our products;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the achievement of milestones established in our license agreements; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>our use of the intellectual property licensed in developing the products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If we need to seek additional intellectual property licenses
in order to complete our product development, our cumulative royalty obligations could adversely affect our net revenues and results
of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our success depends on our ability to successfully develop,
obtain clearance or approval for and commercialize new products.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our success depends on our ability to successfully develop and
market new products. Although we were engaged in human diagnostic antigen manufacturing operations and historically, substantially
all of our revenues have been derived from this business, our ability to substantially increase our revenues and generate net income
is contingent on successfully developing one or more products. Our ability to develop any of the products is dependent on a number
of factors, including funding availability to complete development efforts, our ability to adequately test and refine products,
our ability to seek required FDA clearance or approval and our ability to commercialize our products, thereby generating revenues
once development efforts prove successful. We have encountered in the past, and may again encounter in the future, problems in
the testing phase for our products, which can result in substantial setbacks and delays in the development process. There can be
no assurance that we will not encounter similar setbacks with the products in our pipeline, or that funding from outside sources
and our revenues will be sufficient to bring any or all of our products to the point of commercialization. There can be no assurance
that the products we are developing will work effectively in the marketplace, or that we will be able to produce them on an economical
basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Failure to obtain medical reimbursement for our products
under development, as well as a changing regulatory and reimbursement environment, may impact our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The U.S. healthcare regulatory environment may change in a way
that restricts our ability to market our acute appendicitis tests due to medical coverage or reimbursement limits. Sales of our
human diagnostic tests will depend in part on the extent to which the costs of such tests are covered by health maintenance, managed
care, and similar healthcare management organizations, or reimbursed by government health payor administration authorities, private
health coverage insurers and other third-party payors. These healthcare payors are increasingly challenging the prices charged
for medical products and services. The containment of healthcare costs has become a priority of federal and state governments.
Accordingly, our potential products may not be considered to be cost effective, and reimbursement may not be available or sufficient
to allow us to sell our products on a competitive basis. Because there is no reimbursement code for the <I>APPY1</I> test at this
point, our reimbursement may be adversely affected. Legislation and regulations affecting reimbursement for our products may change
at any time and in ways that are difficult to predict and these changes may be adverse to us. Any reduction in Medicare, Medicaid
or private third-party payor reimbursements could have a negative effect on our operating results. The recent addition of the medical
device tax is also a challenge to the industry.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Health care legislation, including the Patient Protection
and Affordable Care Act and the Health Insurance Portability and Accountability Act of 1996, may have a material adverse effect
on us.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Patient Protection and Affordable Care Act (PPACA) substantially
changes the way healthcare is financed by government and private insurers, encourages improvements in healthcare quality, and impacts
the medical device industry. The PPACA includes an excise tax on entities that manufacture or import medical devices offered for
sale in the United States; a new Patient-Centered Outcomes Research Institute to conduct comparative effectiveness research; and
payment system reforms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The PPACA also imposes new reporting and disclosure requirements
on device and drug manufacturers for any payment or transfer of value made or distributed to physicians or teaching hospitals.
Under these provisions, known as the Physician Payment Sunshine Act, affected device and drug manufacturers need to begin data
collection on August 1, 2013, with the first reports due in 2014. These provisions require, among other things, extensive tracking
and maintenance of databases regarding the disclosure of relationships and payments to physicians and teaching hospitals. In addition,
certain states have passed or are considering legislation restricting our interactions with health care providers and/or requiring
disclosure of many payments to them. Failure to comply with these tracking and reporting laws could subject us to significant civil
monetary penalties.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Health Insurance Portability and Accountability Act of 1996
(HIPAA) created new federal statutes to prevent healthcare fraud and false statements relating to healthcare matters. The healthcare
fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private
payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs
such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment
or exclusion from government sponsored programs. HIPAA also established uniform standards governing the conduct of certain electronic
healthcare transactions and protecting the security and privacy of individually identifiable health information maintained or transmitted
by healthcare providers, health plans and healthcare clearinghouses.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Both federal and state government agencies are continuing heightened
and coordinated civil and criminal enforcement efforts. As part of announced enforcement agency work plans, the federal government
will continue to scrutinize, among other things, the billing practices of hospitals and other providers of healthcare services.
The federal government also has increased funding to fight healthcare fraud, and it is coordinating its enforcement efforts among
various agencies, such as the U.S. Department of Justice, the Office of Inspector General and state Medicaid fraud control units.
We believe that the healthcare industry will continue to be subject to increased government scrutiny and investigations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>If we fail to obtain regulatory approval in foreign jurisdictions,
then we cannot market our products in those jurisdictions.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We plan to market some of our products in foreign jurisdictions.
Specifically, we expect to aggressively market <I>APPY1</I> in foreign jurisdictions. We may need to obtain regulatory approval
from foreign jurisdictions to do so, and obtaining such approval in one jurisdiction does not necessarily guarantee approval in
another. We may be required to conduct additional testing or to provide additional information, resulting in additional expenses,
to obtain necessary approvals. If we fail to obtain approval in such foreign jurisdictions, we would not be able to sell our products
in such jurisdictions, thereby reducing the potential revenue from the sale of our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may be unable to retain key employees or recruit additional
qualified personnel.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Because of the specialized scientific nature of our business,
we are highly dependent upon qualified scientific, technical and managerial personnel. There is intense competition for qualified
personnel in our business. A loss of the services of our qualified personnel, as well as the failure to recruit additional key
scientific, technical and managerial personnel in a timely manner, would harm our development programs and our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our product liability insurance coverage may not be sufficient
to cover claims.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our insurance policies currently cover claims and liabilities
arising out of defective products for losses up to $2.0 million. As a result, if a claim was to be successfully brought against
us, we may not have sufficient insurance that would apply and would have to pay any costs directly, which we may not have the resources
to do.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Risks Relating to our Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our competitive position is contingent upon the strength
of our intellectual property, and we may not be able to withstand challenges to our intellectual property rights.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We rely on our intellectual property, including our issued and
applied for patents and our licenses, as the foundation of our business. If our intellectual property rights are challenged, no
assurances can be given that our patents or licenses will survive claims alleging invalidity or infringement on other patents.
Additionally, disputes may arise regarding inventorship of our intellectual property. There also could be existing patents of which
we are unaware that our products may be infringing. As the number of participants in the market grows, the possibility of patent
infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes would be resolved.
Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk that
some of our confidential information could be publicly disclosed. In addition, during the course of patent litigation, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. Any
litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources,
divert the attention of management or restrict our core business. The occurrence of any of the foregoing could materially impact
our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may incur substantial costs as a result of litigation
or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or
use of, our technology.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Some or all of our patent applications may not issue as patents,
or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents
issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated, found unenforceable or circumvented.
Patent litigation is widespread in the biotechnology industry and could harm our business. Litigation might be necessary to protect
our patent position. Patentability, invalidity, freedom-to-operate or other opinions may be required to determine the scope and
validity of third-party proprietary rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If we choose to go to court to stop a third party from using
the inventions protected by our patent, that third party would have the right to ask the court to rule that such patents are invalid
and/or should not be enforced against that third party. These lawsuits are expensive and we may not have the required resources
to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court will decide that our patents
are not valid and that we cannot stop the other party from using their inventions. There is also the risk that, even if the validity
of these patents is upheld, the court will find that the third party&rsquo;s activities do not infringe our rights in these patents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Furthermore, a third party may claim that we are infringing
the third party&rsquo;s patent rights and may go to court to stop us from engaging in our normal operations and activities, including
making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention
of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party&rsquo;s
patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order
us to pay the other party&rsquo;s treble damages or attorneys&rsquo; fees for having violated the other party&rsquo;s patents.
The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including
us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the
courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that
our products or methods of use either do not infringe the claims of the relevant patent and/or that the third party patent claims
are invalid, and we may not be able to do this. Proving invalidity in the United Sates, in particular, is difficult since it requires
a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In addition, changes in either patent laws or in interpretations
of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow
the scope of our patent protection. In September 2011, the U.S. Congress passed the Leahy-Smith America Invents Act (AIA) which
became effective in March 2013. The AIA reforms United States patent law in part by changing the standard for patent approval for
certain patents from a &ldquo;first to invent&rdquo; standard to a &ldquo;first to file&rdquo; standard and developing a post-grant
review system. It is too early to determine what effect or impact the AIA will have on the operation of our business and the
protection and enforcement of our intellectual property. However, the AIA and its implementation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which
could have a material adverse effect on our business and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Because some patent applications in the United States may be
maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are
typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual
discoveries. We cannot be certain that others have not filed patent applications for technology covered by our issued patents or
our pending applications or that we were the first to invent the technology (pre-AIA) or first to file (post-AIA). Our competitors
may have filed, and may in the future file, patent applications covering technology similar or the same as ours. Any such patent
application may have priority over our patent application and could further require us to obtain rights to such technologies in
order to carry on our business. If another party has filed a U.S. patent application on inventions similar or the same as ours,
we may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or the USPTO, or a court
to determine priority of invention in the United States, for pre-AIA applications and patents. The costs of these proceedings could
be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with
respect to such inventions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Some of our competitors may be able to sustain the costs of
complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties
resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the
funds necessary to continue our operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Obtaining and maintaining our patent protection depends
upon compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The USPTO and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other provisions during the patent prosecution process and
post issuance of a patent. There are situations in which noncompliance of these requirements can result in abandonment or lapse
of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such
an event, competitors might be able to enter the market earlier than would otherwise have been the case if our patent were enforce.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our failure to secure trademark registrations could adversely
affect our ability to market our product candidates and our business. </I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our trademark applications in the United States and any other
jurisdictions where we may file may not be allowed for registration, and our registered trademarks may not be maintained or enforced.
During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those
rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third
parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition
or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations
may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions
could adversely affect our ability to market our product candidates and our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Confidentiality agreements with employees and others may
not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual
property, which could impede our ability to compete.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Because we operate in the highly technical field of biotechnology
we rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However,
trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies
on their own. We have taken steps, including entering into confidentiality agreements with all of our employees, consultants and
corporate partners, to protect our trade secrets and unpatented know-how. These agreements generally require that the other party
to the agreement keep confidential and not disclose to third parties all confidential information developed by the party or made
known to the party by us during the course of the party&rsquo;s relationship with us. We also typically obtain agreements from
these parties which provide that inventions conceived or developed by the party in the course of rendering services to us will
be our exclusive intellectual property. However, these agreements may not be honored and may not effectively assign intellectual
property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult,
expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing
to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive
position.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may be subject to claims that our employees have wrongfully
used or disclosed alleged trade secrets of their former employers.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As is common in the biotechnology and pharmaceutical industry,
we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors
or potential competitors. Although the Company has no knowledge of any claims against us, we may be subject to claims that these
employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former
employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,
litigation could result in substantial costs and be a distraction to management.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may not be able to adequately protect our intellectual
property outside of the United States.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The laws in some foreign jurisdictions may not provide protection
for our trade secrets and other intellectual property. If our trade secrets or other intellectual property are misappropriated
in foreign jurisdictions, we may be without adequate remedies to address these issues. Additionally, we also rely on confidentiality
and assignment of invention agreements to protect our intellectual property. These agreements may provide for contractual remedies
in the event of misappropriation. We do not know to what extent, if any, these agreements and any remedies for their breach, will
be enforced by a foreign or domestic court. In the event our intellectual property is misappropriated or infringed upon and an
adequate remedy is not available, our future prospects will likely diminish.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Additionally, prosecuting and maintaining intellectual property
(particularly patent) rights are very costly endeavors. We do not know whether legal and government fees will increase substantially
and therefore are unable to predict whether cost may factor into our intellectual property strategy.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Risks Related to Our Securities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Current challenges in the commercial and credit environment
may adversely affect our business and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The global financial markets have recently experienced unprecedented
levels of volatility. Our ability to generate cash flows from operations, issue debt or enter into other financing arrangements
on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency
of its customers or suppliers, deterioration in our key financial ratios or credit ratings, or other significantly unfavorable
changes in conditions. While these conditions and the current economic downturn have not meaningfully adversely affected our operations
to date, continuing volatility in the global financial markets could increase borrowing costs or affect our ability to access the
capital markets. Current or worsening economic conditions may also adversely affect the business of our customers, including their
ability to pay for our products and services, and the amount spent on healthcare in general. This could result in a decrease in
the demand for our potential products and services, longer sales cycles, slower adoption of new technologies and increased price
competition. These conditions may also adversely affect certain of our suppliers, which could cause a disruption in our ability
to produce our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We do not anticipate paying any dividends in the foreseeable
future and, as a result, our investors&rsquo; sole source of gain, if any, will depend on capital appreciation, if any.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We do not intend to declare any dividends on our shares of common
stock in the foreseeable future and currently intends to retain any future earnings for funding growth. As a result, investors
should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation,
if any, of our shares may be investors&rsquo; sole source of gain for the foreseeable future. Moreover, investors may not be able
to resell their shares of our common stock at or above the price they paid for them.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>As a public company we are subject to complex legal and
accounting requirements that require us to incur substantial expenses, and our financial controls and procedures may not be sufficient
to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price
and listing on the NASDAQ Capital Market.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As a public company, we are subject to numerous legal and accounting
requirements that do not apply to private companies. The cost of compliance with many of these requirements is substantial, not
only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Failure to
comply with these requirements can have numerous adverse consequences including, but not limited to, our inability to file required
periodic reports on a timely basis, loss of market confidence, delisting of our securities and/or governmental or private actions
against us. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance
will not prove to be a substantial competitive disadvantage vis-&agrave;-vis our privately held and larger public competitors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) requires, among
other things, that we maintain effective internal controls over financial reporting and disclosure controls and procedures. In
particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow
management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley.
Our compliance with Section 404 of Sarbanes-Oxley requires that we incur substantial accounting expense and expend significant
management efforts. The effectiveness of our controls and procedures may in the future be limited by a variety of factors, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>faulty human judgment and simple errors, omissions or mistakes;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>fraudulent action of an individual or collusion of two or more people;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>inappropriate management override of procedures; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial
information.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If we are not able to comply with the requirements of Section
404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control
over financial reporting that are deemed to be material weaknesses, we may be subject to NASDAQ delisting, investigations by the
SEC and civil or criminal sanctions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our ability to successfully implement our business plan and
comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need
to continue to improve existing, and implement new operational, financial and accounting systems, procedures and controls to manage
our business effectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Any delay in the implementation of, or disruption in the transition
to, new or enhanced systems, procedures or controls may cause our operations to suffer, and we may be unable to conclude that our
internal control over financial reporting is effective as required under Section 404 of Sarbanes-Oxley. If we are unable to complete
the required Section 404 assessment as to the adequacy of our internal control over financial reporting, if we fail to maintain
or implement adequate controls, our ability to obtain additional financing could be impaired. In addition, investors could lose
confidence in the reliability of our internal control over financial reporting and in the accuracy of our periodic reports filed
under the Securities Exchange Act of 1934, as amended (Exchange Act). A lack of investor confidence in the reliability and accuracy
of our public reporting could cause our stock price to decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Our stock price, like that of many biotechnology companies,
is volatile.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The market prices for our common stock and for the securities
of biotechnology companies in general have been highly volatile and may continue to be highly volatile in the future, particularly
in light of the current financial markets. For example, in the year ended December 31, 2012, our common stock traded as low as
$1.33 and as high as $5.88. In the year ended December 31, 2011, our common stock traded as low as $5.82 and as high as $25.50
(each on a post reverse stock splits basis). The market price of our common stock may continue to be volatile, especially on the
eve of announcements which the market is expecting, as is the case with clinical trial results. Among other factors, the following
may have a significant effect on the market price of our common stock:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>announcements of clinical trial results, FDA correspondence or interactions, developments with regard to our intellectual property
rights, technological innovations or new commercial products by us or our competitors;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>publicity regarding actual or potential medical results related to products under development or being commercialized by us
or our competitors;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>regulatory developments or delays affecting our products under development in the United States and other countries; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>new proposals to change or reform the U.S. healthcare system, including, but not limited to, new regulations concerning reimbursement
programs.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">These fluctuations may have a negative effect
on the market price of our common stock regardless of our operating performance. In the past, following periods of volatility in
the market price of a company&rsquo;s securities, securities class action litigation has often been instituted. A securities class
action suit against us could result in substantial costs, potential liabilities and the diversion of management&rsquo;s attention
and resources, and could have a material adverse effect on our financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>We may not be able to maintain our current listing on
the NASDAQ Capital Market and a delisting could limit the liquidity of our stock, increase its volatility and hinder our ability
to raise capital.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On February 13, 2012, we received notice from NASDAQ that our
stock trading price was not in compliance with NASDAQ&rsquo;s requirement that listed companies maintain a price of at least $1.00
per share. Further, on May 15, 2012, we received notice from NASDAQ of our non-compliance with the listing requirement to maintain
stockholders&rsquo; equity of at least $2,500,000. Following the completion of a public offering in June 2012, and a one-for-six
reverse stock split effected on June 20, 2012, we regained compliance with both standards for continued listing on the NASDAQ Capital
Market. There can be no assurance that we will be able to maintain the listing of our common stock in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If our common stock is delisted by NASDAQ, our common stock
may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such delisting, our common
stock would become subject to the regulations of the Securities and Exchange Commission, or SEC, relating to the market for penny
stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than
$5.00 per share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could
limit the ability of shareholders to sell securities in the secondary market. In such a case, an investor may find it more difficult
to dispose of or obtain accurate quotations as to the market value of our common stock, and there can be no assurance that our
common stock will be eligible for trading or quotation on any alternative exchanges or markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Delisting from NASDAQ could adversely affect our ability to
raise additional financing through public or private sales of equity securities, would significantly affect the ability of investors
to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other
negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer
business development opportunities.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>SPECIAL NOTE REGARDING FORWARD&minus;LOOKING
STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">This prospectus contains forward&minus;looking statements within
the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of
historical fact, included or incorporated in this report regarding our strategy, future operations, collaborations, intellectual
property, cash resources, financial position, future revenues, projected costs, prospects, plans, and objectives of management
are forward&minus;looking statements. The words &ldquo;believes,&rdquo; &ldquo;anticipates,&rdquo; &ldquo;estimates,&rdquo; &ldquo;plans,&rdquo;
&ldquo;expects,&rdquo; &ldquo;intends,&rdquo; &ldquo;may,&rdquo; &ldquo;could,&rdquo; &ldquo;should,&rdquo; &ldquo;potential,&rdquo;
&ldquo;likely,&rdquo; &ldquo;projects,&rdquo; &ldquo;continue,&rdquo; &ldquo;will,&rdquo; and &ldquo;would&rdquo; and similar expressions
are intended to identify forward&minus;looking statements, although not all forward&minus;looking statements contain these identifying
words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward&minus;looking
statements and you should not place undue reliance on our forward&minus;looking statements. There are a number of important factors
that could cause our actual results to differ materially from those indicated or implied by forward&minus;looking statements. These
important factors include those set forth above under the heading &ldquo;Risk Factors.&rdquo; These factors and the other cautionary
statements made in this prospectus should be read as being applicable to all related forward&minus;looking statements whenever
they appear in this prospectus. In addition, any forward&minus;looking statements represent our estimates only as of the date that
this prospectus is filed with the SEC, and should not be relied upon as representing our estimates as of any subsequent date. We
do not assume any obligation to update any forward&minus;looking statements. We disclaim any intention or obligation to update
or revise any forward&minus;looking statement, whether as a result of new information, future events or otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>USE OF PROCEEDS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We estimate that the net proceeds to us of the sale of the common
stock that we are offering will be approximately $&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, based on an assumed public offering price of $&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share,
which price was the last reported sale price of our common stock reported on the Nasdaq Capital Market on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013, after deducting
the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter exercises
its over-allotment option in full, we estimate that our net proceeds will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We intend to use the net proceeds to us from this offering,
together with our existing cash resources, for working capital and other general corporate purposes, including capital to fund
our operations at least through the FDA clearance process for <I>APPY1</I> and to fund the initial commercialization activities
in the U.S. and the E.U. We have not yet determined with certainty the manner in which we will allocate the net proceeds; however,
we anticipate using:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for
                                                                                                               &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;;
                                                                                                               and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; for working capital and other general
                                                                                                               corporate purposes, including intellectual property.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The amounts described above are only an estimate of the capital
we currently anticipate will be necessary to fund our operations at least through the FDA clearance process for <I>APPY1</I> and
to fund the initial commercialization activities in the U.S. and the E.U. We may also invest working capital in acquiring or developing
technologies that complement our business. Our management will have broad discretion in the application of net proceeds, and investors
will be relying on the judgment of our management regarding the application of the net proceeds of this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Pending use of the proceeds as described above, we intend to
invest the proceeds in short-term, interest-bearing, investment grade securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>DIVIDEND POLICY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have never declared or paid cash dividends on our capital
stock. We currently intend to retain our future earnings, if any, for use in our business and therefore do not anticipate paying
cash dividends in the foreseeable future. Payment of dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition, operating results and current and anticipated cash needs.
Our building mortgage loan restricts us from paying dividends without the lender&rsquo;s consent.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>CAPITALIZATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following table presents a summary of our cash, cash equivalents,
short-term investments and capitalization as of March&nbsp;31, 2013:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>on an actual basis; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>on an as adjusted basis to reflect our receipt of estimated net proceeds of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million from the sale of
shares of common stock in this offering at an assumed public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;per share, the closing price of the Company&rsquo;s
common stock on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2013, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">You should read the following table in conjunction with &ldquo;Use
of Proceeds,&rdquo; &ldquo;Selected Financial Information,&rdquo; &ldquo;Management&rsquo;s Discussion and Analysis of Financial
Condition and Results of Operations&rdquo; and the historical financial statements and the related notes thereto included in this
prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="color: rgb(70,83,97); text-align: center">As of March 31, 2013</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">Actual</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">As Adjusted</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; color: rgb(70,83,97); text-align: left">Cash, cash equivalents and short-term investments</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">9,268,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Current liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,220,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97)">Long-term liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,001,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Stockholders&rsquo; equity</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Common stock ((i) Actual: 30,000,000 shares authorized, no par value; 9,954,380 shares issued and outstanding and (ii) As Adjusted: 30,000,000 shares authorized, no par value;&nbsp;shares issued and outstanding)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">85,408,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Accumulated deficit</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(77,035,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The table excludes the following as of March&nbsp;31, 2013:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>1,175,566 shares of common stock issuable upon the exercise of outstanding options granted under our stock option plans at
a weighted average exercise price of $9.25 per share;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>598,006 shares of common stock issuable upon exercise of options granted outside of our stock option plans and warrants at
a weighted average exercise price of $4.97 per share;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>311,639 shares of common stock available for future issuance under our stock option plans; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of common stock
                                                                                                              issuable upon exercise of the underwriter&rsquo;s over-allotment option.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On April 17, 2013, our Board of Directors approved an amendment
to our Articles of Incorporation, as amended, to increase the total number of shares of common stock we are authorized to issue
from 30,000,000 to 60,000,000, with such amendment being subject to shareholder approval.&nbsp; The amendment is being submitted
to shareholders for approval at the annual meeting of shareholders on June 11, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>DILUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If you invest in our securities in this offering, your ownership
interest will be immediately diluted to the extent of the difference between the assumed price per share of our common stock in
this offering and the as adjusted net tangible book value per share of our common stock upon closing of this offering. Net tangible
book value per share of our common stock is determined at any date by subtracting our total liabilities from the amount of our
total tangible assets (total assets less intangible assets) and dividing the difference by the number of shares of our common stock
deemed to be outstanding at that date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our historical net tangible book value as of March 31, 2013
was approximately $6,765,000, or $0.68 per share of our outstanding common stock, based on 9,954,380 shares of common stock outstanding
as of March&nbsp;31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Investors participating in this offering will incur immediate
and significant dilution. After giving effect to the issuance and sale in this offering of shares of our common stock in this offering,
at an assumed public offering price of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of our common stock, which price was the last reported sale price of our common
stock on the Nasdaq Capital Market on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , 2013, after deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us, our as adjusted net tangible book value as of March&nbsp;31, 2013 would have been approximately
$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or approximately $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of our common stock. This amount represents an immediate increase in net tangible book
value of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of our common stock to existing shareholders and an immediate dilution in net tangible book value of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to new investors purchasing shares in this offering. The following table illustrates this dilution:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 85%">Assumed public offering price per share of common stock</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 17.1pt">Historical net tangible book value per share of our common stock as March&nbsp;31, 2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.68</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 17.1pt">As adjusted increase in net tangible book value per share of our common stock attributable to investors participating in this offering</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">As adjusted net tangible book value per share of our common stock after this offering</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Dilution of as adjusted net tangible book value per share to new investors</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If the underwriter&rsquo;s over-allotment option is exercised
in full, the as adjusted net tangible book value per share of our common stock after giving effect to this offering would be $
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, which amount represents an immediate increase in net tangible book value of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of our common stock to existing
shareholders and an immediate dilution in net tangible book value of $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of our common stock to new investors purchasing
shares in this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>COMMON STOCK PRICE RANGE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our common stock is quoted on the NASDAQ Capital Market under
the symbol &ldquo;APPY&rdquo;. The following table shows the high and low sale prices per share of our common stock as reported
by the NASDAQ Stock Market during the periods presented. Prices were adjusted to reflect the one-for-five reverse stock split effective
July 28, 2011, and the one-for-six reverse stock split effective June 20, 2012.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price Range</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">High</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Low</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 70%; text-align: left">First Quarter</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">25.50</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">16.80</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Second Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">23.61</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">18.60</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Third Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">22.50</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">14.40</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Fourth Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">17.53</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5.82</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">First Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5.88</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3.90</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Second Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4.44</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1.88</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Third Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.77</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1.33</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Fourth Quarter</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.93</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.04</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">First Quarter</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.96</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Second Quarter (through May 8, 2013)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.70</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On May 8, 2013, the last sale price of our common stock, as
reported by the NASDAQ Capital Market, was $1.72 per share.&nbsp;&nbsp;On May 1, 2013, there were approximately 950 holders of
record and approximately 2,600 beneficial holders of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>SELECTED FINANCIAL DATA</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following tables summarize our financial data for the periods
presented. The selected statements of operations data for the years ended December 31, 2012, 2011 and 2010 and the balance sheet
data as of December 31, 2012 and 2011 have been derived from our audited financial statements, which are included in this prospectus.
The selected statements of operations data presented below for the years ended December 31, 2009 and 2008 and the selected balance
sheet data as of December 31, 2010, 2009 and 2008 are derived from audited financial statements, which are not included in this
prospectus. The selected financial historical data for the quarterly periods ended March 31, 2013 and 2012 are derived from interim
unaudited financial statements, which are included in this prospectus. The historical results are not necessarily indicative of
the results to be expected for any future periods. You should read this data together with the financial statements and related
notes included elsewhere in this prospectus, as well as &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition
and Results of Operations&rdquo; and the other financial information included elsewhere in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">For the Fiscal Year Ended December 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended<BR> March 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2008</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Selected Statements of Operations Data:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 37%; color: rgb(70,83,97)">Sales</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">42,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">219,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">370,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">291,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">821,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">-</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">7,300</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Net loss</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(9,212,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(10,214,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(13,338,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(15,518,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(9,658,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,802,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,938,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Basic and diluted net loss per share</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.84</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(7.61</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(10.17</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(14.03</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(9.21</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(0.28</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.21</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97)">Weighted average shares outstanding</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,996,827</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,341,379</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,310,956</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,105,639</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,105,639</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">9,954,380</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,608,146</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="18" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">As of December 31,</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">As of<BR> March 31,</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2009</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2008</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Selected Balance Sheet Data:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 37%; color: rgb(70,83,97); text-align: left">Current assets</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">12,528,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">4,321,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">12,307,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">14,427,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">18,871,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">9,554,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 6%; color: rgb(70,83,97); text-align: right">2,091,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Total assets</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">16,615,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,728,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">17,159,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">19,378,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">24,187,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">13,594,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">6,367,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Current Liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,079,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,072,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,731,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,275,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,746,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,219,604</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,654,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Long term liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,845,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,830,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,180,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,290,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,553,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,001,495</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,603,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Total liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,924,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,902,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,912,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">6,564,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">6,299,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,221,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,257,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Stockholders&rsquo; equity</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">10,691,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,826,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">11,247,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">12,814,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">17,888,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,373,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,110,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS<BR>
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>You should read the following discussion and analysis of
our financial condition and results of operations together with our financial statements and the related notes and other financial
information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth
elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward&minus;looking
statements that involve risks and uncertainties. You should review the &ldquo;Risk Factors&rdquo; section of this prospectus for
a discussion of important factors that could cause actual results to differ materially from the results described in or implied
by the forward&minus;looking statements contained in the following discussion and analysis.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>RESULTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Management&rsquo;s Plans and Basis of Presentation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has experienced recurring losses and negative cash
flows from operations. At March 31, 2013, the Company had cash and liquid investments of approximately $9,268,000, working capital
of approximately $6,335,000, stockholders&rsquo; equity of approximately $8,373,000 and an accumulated deficit of approximately
$77,035,000. To date, the Company has in large part relied on equity financing to fund its operations. The Company expects to continue
to incur losses from operations for the near-term and these losses could be significant as product development, clinical and regulatory
activities, initial commercial and marketing activities, consulting expenses and other product development related expenses are
incurred. The Company believes that its current working capital position will be sufficient to meet its estimated cash needs for
the remainder of 2013 and at least into 2014. If the Company does not obtain additional capital, the Company would potentially
be required to reduce the scope of its research and development activities or cease operations. The Company continues to explore
obtaining additional financing. The Company is closely monitoring its cash balances, cash needs and expense levels. Subsequent
to March 31, 2013, the Company closed on a loan to refinance its $1.6 million mortgage into a long-term obligation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Management&rsquo;s strategic plans include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to advance development of the Company&rsquo;s products, particularly <I>APPY1</I>;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>pursuing additional capital raising opportunities;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to explore prospective partnering or licensing opportunities with complementary opportunities and technologies;
and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to monitor and implement cost control initiatives to conserve cash.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Revenues</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Three months ended March 31, 2013 and 2012</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">No sales were recorded for the three months ended March 31,
2013 as compared to the 2012 period with $7,300 in sales. The decrease is attributable to the Company&rsquo;s previous strategic
decision to suspend antigen production and focus available resources on the acute appendicitis test product development activities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In July 2012, the Company entered into an Exclusive License
Agreement (License Agreement) with a licensee (Licensee) under which the Company granted the Licensee an exclusive royalty-bearing
license to the Company&rsquo;s intellectual property and other assets, including patent rights and know-how, relating to recombinant
single chain reproductive hormone technology for use in non-human mammals (Company&rsquo;s Animal Health Assets).&nbsp; The net
total payments received under this agreement were recorded as deferred revenue and are being recognized as revenue over future
periods.&nbsp;&nbsp;During the three months ended March 31, 2013, $18,655 of such license payments was recognized as revenue.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2012 compared to Year 2011</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Sales of the Company&rsquo;s antigen products for the year ended
December 31, 2012, totaled $42,000, which was a $178,000 or 81% decrease from the 2011 period. The decrease in sales is primarily
attributable to the Company&rsquo;s previous strategic decision to terminate antigen production and focus available scientific
resources on <I>APPY1</I> product development.&nbsp;&nbsp;Three customers accounted for $34,000 of the total 2012 sales and individually
represented 40%, 30%, and 13% of such sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Cost of sales for the year ended December 31, 2012 decreased
by $15,800 compared to the 2011 period. As a percentage of sales, gross profit was 99% in the 2012 period as compared to gross
profit of 93% in the 2011 period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2011 compared to Year 2010</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Sales of the Company&rsquo;s antigen products for the year ended
December 31, 2011 totaled $219,000, which was a $151,000 or 41% decrease from the 2010 period.&nbsp;&nbsp;This decrease in sales
is primarily attributable to the Company&rsquo;s strategic decision in 2010 to suspend antigen production and focus available scientific
resources on the acute appendicitis project and single-chain animal product development.&nbsp;&nbsp;Two customers accounted for
$93,000 of the total 2011 sales and individually represented 28% and 14% of such sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In November 2011, the Company entered into a Termination Agreement
with Novartis Animal Health, Inc. (Novartis) which terminated the Company&rsquo;s 2008 license agreement and development agreement
with Novartis.&nbsp;&nbsp;Accordingly, the Company did not recognize any revenue related to the Novartis license agreement in the
year ended December 31, 2012.&nbsp;&nbsp;During the years ending December 31, 2011 and 2010, $62,000 and $68,000 of such Novartis
license revenue was recognized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Cost of sales for the year ended December 31, 2011 totaled $16,000,
which was a $342,000 or 95% decrease as compared to the 2010 period. As a percentage of sales, 2011 gross profit was 93% as compared
to 3% in 2010.&nbsp; The improvement in the gross profit percentage resulted from $153,000 in inventory write downs recorded in
2010 compared to $1,000 in write downs in 2011, combined with no fixed production cost incurred in the 2011 period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Selling, General and Administrative Expenses</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Three months ended March 31, 2013 and 2012</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Selling, general and administrative expenses in the three months
ended March 31, 2013 totaled $1,428,000, which was a $224,000 or 19% increase as compared to the 2012 period. Commercialization
and marketing expenses increased by approximately $132,000 in the 2013 period as the Company advanced on its product commercialization
strategy. During the three months ended March 31, 2013 expenses associated with legal fees incurred on contractual matters increased
by approximately $33,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2012 compared to Year 2011</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Selling, general and administrative expenses in the year ended
December 31, 2012, totaled $5,185,000, which was a $390,000 or 7% decrease as compared to the 2011 period. A reduction in personnel
from 2011 to 2012 resulted in a decrease in compensation related costs of approximately $307,000.&nbsp;&nbsp;Total stock-based
compensation and non-qualified option expenses were approximately $419,000 lower in the 2012 period, primarily due to lower values
associated with options granted in 2012.&nbsp;&nbsp;During the year ended December 31, 2012, expenses associated with legal and
accounting fees decreased by $66,000 and expenses associated with being a public company decreased by $68,000.&nbsp;&nbsp;These
decreases were offset by an increase of $495,000 in expenses associated with marketing and commercialization activities in 2012.&nbsp;&nbsp;Insurance
costs increased by approximately $74,000 due generally to normal price increases.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2011 compared to Year 2010</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Selling, general and administrative expenses in the year ended
December 31, 2011, totaled $5,575,000, which was a $1,842,000 or 25% decrease as compared to the 2010 period. Total stock-based
compensation and non-qualified option expenses decreased $1,044,000 in 2011 primarily due to fewer options being granted combined
with lower computed Black-Scholes values attributable to the options granted. Compensation expenses also decreased $359,000 in
2011 due to lower employee costs including a reduced amount accrued for incentive pay in the 2011 period compared to the 2010 period.
Expenses associated with public company costs decreased $379,000 in 2011 and legal fees decreased $104,000 compared to 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Research and Development</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Three months ended March 31, 2013 and 2012</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Research and development expenses in the three months ended
March 31, 2013 totaled $1,412,000, which was approximately a $735,000 or 109% increase as compared to the 2012 period. Appendicitis
test development and research expenses increased by approximately $574,000 in 2013 as compared to 2012, due primarily to commencement
of clinical trial activities. Expenses incurred for the single-chain animal product development decreased by approximately $12,000
in the 2013 period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2012 compared to Year 2011</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Research and development expenses in the year ended December
31, 2012 totaled $3,838,000, which was a $1,828,000 or 32% decrease as compared to the 2011 period.&nbsp;<I>APPY1</I> test development
and research expenses in 2012 decreased by approximately $1,238,000, as compared to 2011 expenses. This decrease included a decrease
of approximately $1,006,000 in reduced expenses for development of the cassette and reader expenses inclusive of reduced regulatory
costs and additional marker discovery efforts and approximately $232,000 related to reduced clinical trial costs as the 2011 <I>APPY1</I>
clinical pilot trial was completed in 2011.&nbsp;&nbsp;Expenses incurred for the single-chain animal product development decreased
by approximately $353,000 in the 2012 period following the execution of the animal health license agreement.&nbsp;&nbsp;Patent
related expenses, including patent impairment expenses in 2012 decreased by approximately $239,000 over 2011 amounts.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2011 compared to Year 2010</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Research and development expenses in the 2011 period totaled
$5,666,000, which was a $446,000 or 7% decrease as compared to the 2010 period. The completion of the Enzyme Linked Immunosorbant
Assay (ELISA) based appendicitis clinical trial in mid-2010 resulted in a $1,269,000 decrease which was offset by $1,030,000 in
expenses in 2011 for the <I>APPY1</I> pilot trial.&nbsp;Discovery efforts related to the&nbsp;identifying additional markers for
the appendicitis test increased expenses by approximately $488,000 compared to the 2010 period and general appendicitis research
decreased $131,000 in the 2011 period.&nbsp;&nbsp;Expenses incurred for the single-chain animal product development decreased by
approximately $963,000 in the 2011 period due to lower expenses associated with the shared development costs under the Novartis
agreement. Research and development expense increased by $250,000 for salaries primarily related to development activities on the
appendicitis test and related discovery work.&nbsp;&nbsp;Amortization expenses associated with patents in 2011 increased by $162,000,
over 2010 expenses primarily due to patent and trademark amortization and write-offs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Other Income and Expense</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Three months ended March 31, 2013 and 2012</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Primarily as a result of the higher levels of cash and reduced
investment returns for the three months ended March 31, 2013 as compared to the 2012 period, interest income of approximately $13,000
was earned in 2013 as compared to $2,000 in 2012. Interest expense for the three months ended March 31, 2013, decreased to $44,000,
compared to $67,000 in the 2012 period. During the three-month period ended March 31, 2013, the Company received income of approximately
$50,000 in connection with a redemption of its current mutual insurance company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2012 compared to Year 2011</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Interest and other expense for the year ended December 31, 2012,
increased to an expense of $251,000, compared to income of $762,000 in the 2011 period.&nbsp;&nbsp;The increase in interest expense
is primarily due to imputed interest expense under the Novartis Termination Agreement and the financing of certain insurance obligations.
Other income in 2011 included a gain of approximately $939,000 resulting from the Termination Agreement with Novartis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Year 2011 compared to Year 2010</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In 2011, other income included a gain of approximately $939,000
resulting from the Termination Agreement with Novartis.&nbsp; Under the Termination Agreement, the Company&rsquo;s liabilities
associated with the Novartis arrangements exceeded its net settlement payable to Novartis, resulting in a gain on the contract
termination, net of related legal fees incurred of approximately $7,500.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Primarily as a result of lower average cash and investment balances
in 2011 as compared to 2010, interest income of approximately $16,000 was earned in 2011 as compared to $62,000 in 2010.&nbsp;&nbsp;Interest
expense for the year ended December 31, 2011, increased to $197,000, compared to $194,000 the 2010 year. The increase in interest
expense was primarily due to the financing of certain insurance premiums.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Income Taxes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">No income tax benefit was recorded on the net loss for the three
months ended March 31, 2013 and 2012, as management was unable to determine that it was more likely than not that such benefit
would be realized.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">No income tax benefit was recorded on the loss for the year
ended December 31, 2012, as management of the Company was unable to determine that it was more likely than not that such benefit
would be realized. At December 31, 2012, the Company had net operating loss carry forwards for income tax purposes of approximately
$68 million, expiring through 2032.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>LIQUIDITY AND CAPITAL RESOURCES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">At March 31, 2013, we had working capital of $6,335,000, which
included cash, cash equivalents and short term investments of $9,268,000. We reported a net loss of $2,802,000 during the three
months ended March 31, 2013, which included $552,000 in net non-cash expenses including stock-based compensation totaling $484,000
and depreciation and amortization totaling $87,000, net of amortization of license fee of $19,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Currently, our primary focus is to continue the development
activities on our acute appendicitis diagnostic test, including advancement of the steps required for FDA clearance, as well as
advancing on commercialization and marketing activities following the recent attainment of CE marking in the E.U.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We expect to continue to incur losses from operations for the
near-term and these losses could be significant as we incur product development, clinical and regulatory activities, contract consulting
and other product development and commercialization related expenses. We believe that our current working capital position will
be sufficient to meet our estimated cash needs for the remainder of 2013 and at least into 2014. The Company is pursuing additional
financing opportunities; however, there can be no assurance that the Company will be able to obtain sufficient additional financing
on terms acceptable to the Company, if at all. We are closely monitoring our cash balances, cash needs and expense levels. The
accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that might result in the possible inability of the Company
to continue as a going concern.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We expect that our primary expenditures will be to continue
enrollment of our FDA clinical trial for <I>APPY1 </I>and to support commercialization and marketing activities of our appendicitis
test in Europe following the recent successful completion of CE marking. Based upon our experience, clinical trial expenses can
be significant costs. During the three month periods ended March 31, 2013 and 2012, we expended approximately $871,000 and $277,000,
respectively, in direct costs for <I>APPY1 </I>development and related clinical and regulatory efforts. Steps to achieve commercialization
of the acute appendicitis product will be an ongoing and evolving process with expected improvements and possible subsequent generations
being evaluated for the test. Should we be unable to achieve FDA clearance of the <I>APPY1 </I>appendicitis test or generate sufficient
revenues from the product, we would need to rely on other business or product opportunities to generate revenues and costs that
we have incurred for the acute appendicitis patent may be deemed impaired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In November 2011, the Company entered into the Novartis Termination
Agreement to terminate the 2008 Novartis License Agreement. Under the Novartis Termination Agreement, the termination obligation
totaled $1,374,000, and at March 31, 2013, the remaining outstanding termination obligation totaled approximately $201,000 which
is due in June 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During July 2012, the Company entered into a License Agreement
with the Licensee, under which the Company granted the Licensee an exclusive royalty-bearing license to the Company&rsquo;s Animal
Health Assets. The License Agreement includes a sublicense of the technology licensed to the Company by Washington University of
St. Louis, or WU. Under the terms of the WU License Agreement, a portion of license fees and royalties Venaxis receives from sublicensing
agreements will be paid to WU. Obligation for any license fees due to WU is included in accrued expenses at March 31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under the License Agreement, as of March 31, 2013, the following
future license fees and milestone payments will be paid to the Company, assuming future milestones are successfully achieved by
the Licensee:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>license fees of $204,000<B>&nbsp;</B>payable in June 2013;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>milestone payments, totaling up to a potential of $1.1 million in the aggregate, based on the satisfactory conclusion of milestones
as defined in the License Agreement;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>potential for milestone payments of up to an additional $2 million for development and receipt of regulatory approval for additional
licensed products; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>royalties, at low double digit rates, based on sales of licensed products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have entered and expect to continue to enter into additional
agreements with contract manufacturers for the development and manufacture of certain of our products for which we are seeking
FDA approval. The goal of this development process is to establish current good manufacturing practices (cGMP) required for those
products for which we are seeking FDA approval. These development and manufacturing agreements generally contain transfer fees
and possible penalty and royalty provisions if we transfer our products to another contract manufacturer. We expect to continue
to evaluate, negotiate and execute additional and expanded development and manufacturing agreements, some of which may be significant
commitments. We may also consider acquisitions of development technologies or products, if opportunities arise that we believe
fit our business strategy and would be appropriate from a capital standpoint.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Capital expenditures, primarily for production, laboratory and
facility improvement costs for remainder of the year ending December 31, 2013 are anticipated to total approximately $75,000 to
$125,000. We anticipate these capital expenditures to be financed through working capital.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company periodically enters into generally short-term consulting
and development agreements primarily for product development, testing services and in connection with clinical trials conducted
as part of the Company&rsquo;s FDA clearance process. Such commitments at any point in time may be significant but the agreements
typically contain cancellation provisions.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have a permanent mortgage on our
land and building that commenced in July 2003. The mortgage is held by a commercial bank and includes a portion guaranteed by
the U. S. Small Business Administration. Effective April 8, 2013, we entered into the Modification Agreement with the Bank to
refinance the outstanding commercial loan for which the remaining principal balance of approximately $1.6 million was due in
July 2013. The loan is collateralized by the real property. The Modification Agreement extends the maturity date to April
2018 and reduces the interest rate to a fixed interest rate of 3.95% from a variable rate equal to 1% over The Wall Street
Journal Prime Rate (with a minimum rate of 7%). The loan terms include a payment amortization period of fifteen years, with a
balloon maturity at five years. The portion of the building mortgage loan
guaranteed by the SBA, which is approximately 34% of the current loan total, remains unaffected by the Modification
Agreement. The SBA portion of the loan requires total monthly payments of approximately $9,200 through July 2023, which
currently includes approximately $4,100 per month in contractual interest and fees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Due to recent market events that have adversely affected all
industries and the economy as a whole, management has placed increased emphasis on monitoring the risks associated with the current
environment, particularly the investment parameters of the short term investments, the recoverability of current assets, the fair
value of assets, and the Company&rsquo;s liquidity. At this point in time, there has not been a material impact on the Company&rsquo;s
assets and liquidity. Management will continue to monitor the risks associated with the current environment and their impact on
the Company&rsquo;s results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Off-Balance Sheet Arrangements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We do not have any off-balance sheet arrangements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Operating Activities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash consumed by operating activities was $2,472,000 during
the three months ended March 31, 2013. Cash was consumed by the loss of $2,802,000, less non-cash expenses of $484,000 for stock-based
compensation and $87,000 for depreciation and amortization. For the three months ended March 31, 2013, decreases in accounts receivable
and prepaid and other current assets of $101,000 provided cash, primarily related to routine changes in operating activities. A
net decrease of $98,000 in accounts payable and accrued expenses consumed cash from operating activities, primarily related to
the payment of 2012 incentive plan amount paid in 2013, offset by increased costs accrued on the <I>APPY1 </I>trial in 2013. Cash
provided by operations included an increase of approximately $197,000 in deferred revenue, following the execution of the License
Agreement for the Company&rsquo;s animal health assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash consumed by operating activities was $5,489,000 during
the year ended December 31, 2012. Cash was consumed by the loss of $9,212,000, less non-cash expenses of $931,000 for stock-based
compensation, depreciation and amortization totaling $430,000 and impairment and other items, net totaling $26,000. For the year
ended December 31, 2012, decreases in accounts receivable generated cash of $35,000. Decreases in prepaid and other current assets
of $408,000 provided cash, primarily related to routine changes in operating activities.&nbsp;&nbsp;There was a $306,000 increase
in accounts payable and accrued expenses in the year ended December 31, 2012, primarily due to increases in the activity levels
at year end for the Company&rsquo;s <I>APPY1</I> clinical, regulatory, and marketing activities.&nbsp;&nbsp;An increase of $405,000
in accrued compensation provided cash.&nbsp;&nbsp;Cash provided by operations included an increase of $1,182,000 in deferred revenue,
following the execution of the License Agreement for the Company&rsquo;s animal health assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash consumed by operating activities was $8,333,000 during
the year ended December 31, 2011. Cash was consumed by the loss of $10,214,000, less net non-cash expenses of $1,093,000, including
stock-based compensation totaling $1,336,000, $491,000 for depreciation and amortization, impairment and related charges totaling
$275,000 and a $939,000 non-cash gain related to the Novartis Termination Agreement. For the year ended December 31, 2011, a $38,000
decrease in accounts receivable associated with lower antigen sales generated cash. A decrease in prepaid and other current assets
of $427,000 provided cash, primarily related to routine changes in operating activities. Cash increased from an increase of $292,000
in accounts payable, net of the non-cash adjustment of $837,000 decreasing the accounts payable balance associated with the Novartis
Termination Agreement settlement.&nbsp;&nbsp;Accrued expenses decreased $31,000 in the year ended December 31, 2011 also generated
cash, primarily due to a combination of an increase in accrued expenses related to <I>APPY1</I> pilot trial expenses and a decrease
of $180,000 in accrued compensation, due to a decrease in amounts accrued for incentive pay for the 2011 period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash consumed by operating activities was $10,707,000 during
the year ended December 31, 2010. Cash was consumed by the loss of $13,338,000, less non-cash expenses totaling $2,895,000 relating
to stock-based compensation totaling $2,364,000 and depreciation and amortization totaling $492,000 and other items net, which
totaled $39,000.&nbsp;&nbsp;In late 2009, we substantially suspended the production of antigen products as a result of our strategic
decision to focus available scientific resources on acute appendicitis and single-chain animal product development.&nbsp;&nbsp;As
a result of this decision we recorded a write down of approximately $153,000 in antigen inventories in 2010.&nbsp;&nbsp;Due to
the suspension of antigen sales the net investment in accounts receivable and inventories, decreased by $297,000 in 2010 generating
cash including the inventory write down of approximately $153,000. A decrease in prepaid and other current assets of $81,000 provided
cash, primarily related to routine changes in operating activities.&nbsp;&nbsp;Cash used by operations included a $642,000 reduction
in accounts payable and accrued expenses in 2010, primarily due to the decrease in expenses related to the completion of the Company&rsquo;s
2010 <I>APPY1</I> clinical trial.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Investing Activities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash outflows from investing activities consumed $5,653,000
during the three months ended March 31, 2013. Purchases of short-term investments totaled approximately $5,613,000. A $29,000 use
of cash was attributable to additional costs incurred from patent filings and approximately $11,000 was incurred from purchases
of property and equipment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash outflows from investing activities consumed $316,000
during the year ended December 31, 2012. Sales of marketable securities investments totaled approximately $2,832,000 and marketable
securities purchased totaled approximately $2,992,000.&nbsp;&nbsp;Cash totaling $156,000 was used for additions to capitalized
patent filings and equipment additions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash inflows from investing activities generated $1,611,000
during the year ended December 31, 2011. Marketable securities investments purchased totaled approximately $1.0 million and marketable
securities sold totaled approximately $3.0 million. Cash totaling $228,000 was used for additions to patents and additions to equipment
totaling $90,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash outflows from investing activities consumed $2,923,000
during the year ended December 31, 2010.&nbsp;&nbsp;Marketable securities investments acquired totaled approximately $7.6 million
and sales of marketable securities totaled approximately $5.2 million. Cash was used for additions to intangibles of $310,000 for
costs incurred from patent filings and equipment additions totaling $192,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Financing Activities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash outflows from financing activities consumed $361,000
during the three month period ended March 31, 2013 for repayments under existing debt agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash inflows from financing activities generated $13,815,000
during the year ended December 31, 2012. The Company received net proceeds of $15,146,000 from the sale of common stock in public
offerings of securities and repaid $1,331,000 in scheduled payments under its debt agreements including payments under the Novartis
Termination Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash inflows from financing activities generated $782,000
during the year ended December 31, 2011. The Company received net proceeds of $1,456,000 from the sale of common stock in a December
2011 registered direct offering and repaid $674,000 in scheduled payments under its debt agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Net cash inflows from financing activities generated $9,171,000
during the year ended December 31, 2010. The Company received net proceeds of $9,117,000 from the sale of common stock and $291,000
in proceeds from the exercise of stock options. The Company repaid $236,000, in scheduled payments under its debt agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Critical Accounting Policies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions about
future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual
results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most
significant accounting estimates inherent in the preparation of our financial statements include estimates associated with revenue
recognition, impairment analysis of intangibles and stock-based compensation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company&rsquo;s financial position, results of operations
and cash flows are impacted by the accounting policies the Company has adopted. In order to get a full understanding of the Company&rsquo;s
financial statements, one must have a clear understanding of the accounting policies employed. A summary of the Company&rsquo;s
critical accounting policies follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Investments:</B>&nbsp;&nbsp;&nbsp;The Company invests excess
cash from time to time in highly liquid debt and equity securities of highly rated entities which are classified as trading securities.
Such amounts are recorded at market and are classified as current, as the Company does not intend to hold the investments beyond
twelve months. Such excess funds are invested under the Company&rsquo;s investment policy but an unexpected decline or loss could
have an adverse and material effect on the carrying value, recoverability or investment returns of such investments. Our Board
has approved an investment policy covering the investment parameters to be followed with the primary goals being the safety of
principal amounts and maintaining liquidity of the fund. The policy provides for minimum investment rating requirements as well
as limitations on investment duration and concentrations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Intangible Assets:</B> &nbsp;&nbsp;&nbsp;Intangible assets
primarily represent legal costs and filings associated with obtaining patents on the Company&rsquo;s new discoveries. The Company
amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straightline method.
The Company tests intangible assets with finite lives upon significant changes in the Company&rsquo;s business environment. The
testing resulted in no patent impairment charges during the three months ended March 31, 2013, $42,000 for the three months ended
March 31, 2012 and $45,000, $275,000 and $175,000 for the years ended December 31, 2012, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Long-Lived Assets:</B> &nbsp;&nbsp;&nbsp;The Company records
property and equipment at cost. Depreciation of the assets is recorded on the straight-line basis over the estimated useful lives
of the assets. Dispositions of property and equipment are recorded in the period of disposition and any resulting gains or losses
are charged to income or expense when the disposal occurs. The Company reviews for impairment whenever there is an indication of
impairment. The required annual testing resulted in no impairment charges being recorded to date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Revenue Recognition</B>: &nbsp;&nbsp;&nbsp;The Company&rsquo;s
revenues are recognized when products are shipped or delivered to unaffiliated customers. The SEC&rsquo;s Staff Accounting Bulletin
(SAB) No. 104, provides guidance on the application of generally accepted accounting principles to select revenue recognition issues.
The Company has concluded that its revenue recognition policy is appropriate and in accordance with SAB No. 104. Revenue is recognized
under sales, license and distribution agreements only after the following criteria are met: (i) there exists adequate evidence
of the transactions; (ii) delivery of goods has occurred or services have been rendered; and (iii) the price is not contingent
on future activity and (iv) collectability is reasonably assured.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Stock-Based Compensation:</B> &nbsp;&nbsp;&nbsp;ASC 718,
<I>Share-Based Payment</I>, defines the fair-value-based method of accounting for stock-based employee compensation plans and transactions
used by the Company to account for its issuances of equity instruments to record compensation cost for stock-based employee compensation
plans at fair value as well as to acquire goods or services from non-employees. Transactions in which the Company issues stock-based
compensation to employees, directors and consultants and for goods or services received from non-employees are accounted for based
on the fair value of the equity instruments issued. The Company utilizes pricing models in determining the fair values of options
and warrants issued as stock-based compensation. These pricing models utilize the market price of the Company&rsquo;s common stock
and the exercise price of the option or warrant, as well as time value and volatility factors underlying the positions.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Recently Issued and Adopted Accounting Pronouncements:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has evaluated all recently issued accounting pronouncements
and believes such pronouncements do not have a material effect on the Company&rsquo;s financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Reclassifications:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Certain prior period amounts in the accompanying financial statements
have been reclassified to conform to the presentation used in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Quantitative and Qualitative Disclosure About Market Risk</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>General: </B>We have limited exposure to market risks from
instruments that may impact the <I>Balance Sheets</I>, <I>Statements of Operations</I>, and <I>Statements of Cash Flows</I>. Such
exposure is due primarily to changing interest rates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Interest Rates: </B>The primary objective for our investment
activities is to preserve principal while maximizing yields without significantly increasing risk. This is accomplished by investing
excess cash in highly liquid debt and equity investments of highly rated entities which are classified as trading securities. As
of March 31, 2013, approximately 24% of the investment portfolio was in cash and cash equivalents with very short term maturities
and therefore not subject to any significant interest rate fluctuations. We have no investments denominated in foreign currencies
and therefore our investments are not subject to foreign currency exchange risk.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>BUSINESS </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Overview</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Venaxis is focused on advancing products that address unmet
human diagnostic needs. We were formed in 2000 to produce purified proteins for diagnostic applications. To date, we have leveraged
our science and technology to advance development of our <I>APPY1</I> product candidate and to develop animal health-related assets,
including intellectual property.&nbsp;In 2012, we out-licensed these animal health-related assets and changed our name to Venaxis,
Inc. from AspenBio Pharma, Inc. &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our business strategy is to focus on products and technologies
that we believe have attractive worldwide markets and significant product margin potential. Our acute appendicitis test, <I>APPY1</I>,
which is our current primary focus, meets these objectives. We may also pursue technologies under &ldquo;in-licensing&rdquo; agreements
with third parties such as universities, researchers or individuals, add value by advancing the stage of research and development
on the technologies through proof of concept, and then either &ldquo;out-license&rdquo; to global diagnostic companies or continue
with in-house development towards regulatory approval, product introduction and launch.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>APPY1</I> is a multi-marker blood test panel intended to
be used by emergency department physicians to aid them in the evaluation of possible acute appendicitis in children, adolescent
and young adult patients (ages 2 &ndash; 20) who present with abdominal pain. In the United States, <I>APPY1</I> is under the regulatory
jurisdiction of the FDA. We are not aware of any blood test that is cleared by the FDA for the purpose of aiding in ruling out
appendicitis, and are not aware of any competitors in this area. We expect that a principal benefit of <I>APPY1</I> will be to
provide physicians with objective information that will aid in the identification of patients who present with abdominal pain but
who are at low risk for appendicitis. Such objective information could be used by the physician to pursue more conservative treatment
plans for such low-risk patients, such as avoiding or delaying the use of computed tomography (CT) scans with such patients. This
could have the benefit of reducing the exposure to radiation from, and the expense associated with, performing CT scans in such
low-risk patients as part of the initial assessment conducted in the emergency department. In addition, we believe the test can
potentially save significant costs through improved patient throughput in emergency departments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have completed a design freeze for our <I>APPY1</I> product
candidate and, in early 2013, commenced a 2,000 patient, multi-center prospective pivotal clinical trial to be used in connection
with our application for FDA clearance.&nbsp;&nbsp;We also have commenced initial marketing and commercialization activities for
our CE marked <I>APPY1</I> products in the European Union.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>APPY1</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Appendicitis</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Appendicitis is a rapidly progressing condition that typically
causes lower abdominal pain to increase over a period of 12 to 48 hours from onset of symptoms to perforation of the appendix.
This progressive pain period is variable, however, and can be sustained for 48 hours or more. Failure to accurately diagnose and
treat acute appendicitis before perforation can lead to serious complications and, in some cases, death. The current diagnostic
and treatment paradigm for acute appendicitis includes many factors, such as a review of the patient&rsquo;s clinical presentation
including signs and symptoms, health history, blood chemistry, temperature and white blood cell (WBC) count. In the U.S., patients
who are considered to be at risk for acute appendicitis are frequently sent for CT scan or ultrasound imaging for further diagnosis
and then surgery if indicated. To date, there appears to be no individual sign, symptom, test, or procedure capable of providing
either a conclusive rule in or rule out diagnosis of acute appendicitis. Although the use of CT scans appears to be the most widely
used diagnostic tool in the U.S., its results can be inconclusive in addition to subjecting patients to large doses of radiation.
Over the past decade there has been increasing concern over radiation exposure caused by imaging. In 2010, the FDA released a report
titled &ldquo;Initiative to Reduce Unnecessary Radiation Exposure from Medical Imaging.&rdquo; Studies conducted from 2007 through
2010 and published in peer review publications provide evidence that the radiation from a single CT scan can significantly increase
the risk of developing cancer later in life, that children and adolescents are especially vulnerable to the oncogenic, long term
effects of exposure to high doses of ionizing radiation, such as from CT scans, and that up to 2% of all U.S. cancers will
result from CT scan use. We believe that these risks, when coupled with the increased use of CT scans in abdominal pain patients,
could have positive implications for a test like <I>APPY1</I> which, if cleared, could be used to help physicians determine which
patients are at low risk for the disease, leading to more conservative treatment and potentially avoiding use of CT scans. Currently,
approximately 3.7 million CT scans are conducted annually on abdominal pain patients. Physicians also face the dilemma of minimizing
the negative appendectomy surgery rate without increasing the incidence of a life threatening perforation among patients presenting
with symptoms of suspected acute appendicitis. We expect <I>APPY1</I> will provide an additional objective tool to assist physicians
in their initial clinical evaluation of patients by aiding in the identification of patients at low risk for acute appendicitis,
so that the diagnostic protocols such as CT scans can be used more selectively for those patients with inconclusive test results.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">It is estimated that approximately 5 to 7% of the population
will be diagnosed with appendicitis in their lifetime with the peak age range for the disease being the early teens.&nbsp;&nbsp;Published
data from several sources indicate that in the U.S., 3-15% of appendectomies remove a normal appendix primarily due to an incorrect
diagnosis.&nbsp;Appendicitis is one of the leading causes of medical malpractice claims in the U.S. due to many factors, including
high diagnostic error rates, negative appendectomies, and increased cost and complications in cases where the appendix perforates.
In addition to health risks, hospital charges for unnecessary (negative) appendectomies are estimated to cost approximately $740
million annually in the U.S. alone.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Acute appendicitis most frequently occurs in patients aged 10
to 30, but can affect all ages.&nbsp;&nbsp;Using a CT scan to rule out acute appendicitis can be particularly difficult in children
and young adults because many patients in these age groups have low body fat, resulting in poor tissue differentiation or contrast
on the CT scan. The <I>APPY1</I> test has the potential to enhance overall safety by reducing the amount of radiation exposure
from unnecessary CT scans in the low-risk patient population.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Product Description </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our current <I>APPY1</I> product candidate is a multi-marker
blood test panel of biomarkers consisting of our patented MRP 8/14 (also known as S100A8/A9 or calprotectin) and a combination
of markers including C-reactive protein (CRP), along with WBC count.&nbsp;&nbsp;The scoring results of these individual components
are analyzed using our proprietary algorithm software embedded in the APPY reader, which is a small bioanalyzer, to provide an
<I>APPY1</I> result to the physician. These results are displayed on the device display screen and also are included on a patient
print-out from the APPY reader. The test is designed to be run in approximately 20 minutes in the hospital&rsquo;s Clinical Laboratories
Improvement Amendments, or CLIA, certified laboratory.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Results from our development efforts, clinical trials and pilot
study performed to date indicate that the greatest benefit of the <I>APPY1</I> test would be in aiding the physician in the evaluation
of those patients at low risk for having acute appendicitis.&nbsp;&nbsp;We believe that <I>APPY1</I> has the potential to enhance
the effectiveness and speed of patient evaluation and improve the standard of care for low risk patients. We believe that if <I>APPY1</I>
is cleared by the FDA, it will be incorporated in routine testing as a patient&rsquo;s blood sample is taken in the ordinary course
of an initial assessment of the patient entering the emergency department when the physician suspects appendicitis, but considers
the patient at low risk for the disease. The <I>APPY1</I> result is intended to cost-effectively help the physician identify if
a patient is at a low risk for acute appendicitis as the cause of his or her abdominal pain.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">An <I>APPY1</I> result will be reported as negative (result
below the designated cut-off value) or inconclusive (result at or above the designated cut-off value). A negative <I>APPY1</I>
result can be used by physicians, as an adjunct to other signs and symptoms, to identify those patients at low risk for appendicitis,
thereby allowing for use of a more conservative treatment plan, i.e., observation and monitoring rather than a surgical consult
and/or CT scan, which is more costly, time-consuming and with potential long-term harmful effects. We believe <I>APPY1</I> may
potentially mitigate unnecessary radiologic imaging in those patients who are identified as being at low risk for acute appendicitis.
The use of <I>APPY1</I> in emergency departments could also positively impact resource utilization, and improve patient management
and overall emergency department efficiency. The primary focus of our recent product development efforts is directed toward obtaining
FDA clearance for <I>APPY1</I> for children and adolescents.&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The potential value of the <I>APPY1</I>
test is to identify those patients with negative results, thereby aiding a physician in identifying those patients at low risk
for acute appendicitis and allowing for a more conservative evaluation and treatment path. The following <I>APPY1</I> data, which were presented for appendicitis in 2012 at the National and Regional
meetings of the Society for Academic Emergency Medicine (SAEM), summarize the results of a 2011 pilot study we conducted:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD COLSPAN="4" STYLE="color: rgb(70,83,97); font-weight: bold; border-bottom: Black 1pt solid; text-align: center"><I>APPY1</I> <B>Multi-Marker
    Study Result</B></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">95% Confidence Interval</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 47%; color: rgb(70,83,97); text-align: center">Sensitivity (1)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 20%; color: rgb(70,83,97); text-align: right">96.5</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 29%; color: rgb(70,83,97); text-align: center">92.1 &ndash; 98.5</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: center">Specificity (2)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">43.2</TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: center">38.2 &ndash; 48.3</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: center">NPV (3)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">96.9</TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: center">92.9 &ndash; 98.7</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>The sensitivity of a diagnostic test reflects the probability that a patient with a disease will have a positive test result.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Specificity reflects the probability that a patient without disease will have a negative test result.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Negative predictive value (NPV) reflects the probability that a patient with a negative test result will not have the disease.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">These initial study data demonstrated high sensitivity and high
NPV similar to other adjunctive tests for other conditions currently in use by physicians. We believe that these performance attributes
should provide the emergency department physician with incremental diagnostic information to enhance their decision-making process.
By way of example, with an NPV of 96.9%, the physician could be 96.9% confident that the patient with a negative result did not
have appendicitis. The pilot study data also show that 43% of patients who underwent CT scans had a negative <I>APPY1</I> result,
and potentially could have been treated more conservatively if the test had been available as part of the treatment plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In the spring of 2012, we conducted a survey of 22 emergency
department physicians who face daily the difficult diagnosis pathway for pediatric and adolescent patients presenting with abdominal
pain. These physicians indicated that the addition of <I>APPY1</I> with high NPV would enable them to use the test to assist in
the identification of low-risk patients, and decrease their overall use of CT scans in such patient population. Although the use
of CT scans appears to be the most widely used diagnostic tool for acute appendicitis in the U.S., its results can be inconclusive,
and each CT scan subjects the patient to large doses of potentially harmful radiation. As further described below, over the past
decade there has been increasing concern regarding the long-term effects of radiation exposure from radiologic tests.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Product Development and Prior Clinical Trials and Studies</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We began product development of <I>APPY1</I> in 2003 with the
objective of developing a blood-based, human diagnostic test to aid in the evaluation of patients suspected of having acute appendicitis.&nbsp;In
December 2008, we completed an initial clinical trial (approximately 800 patients) using the original ELISA-based <I>APPY1 </I>test
using MRP 8/14 as a single biomarker test, for use as an aid in the evaluation of acute appendicitis. The results of this trial,
based upon an MRP 8/14 designated cut-off value of 15, showed sensitivity of 89%, NPV of 89% and specificity of 38%.&nbsp;&nbsp;Based
on these results, in June 2009 we submitted a 510(k) premarket notification application to the FDA to seek clearance of the <I>APPY1</I>
ELISA-based test used in this trial. In August 2009, the FDA responded to our submission with a request for additional information.
As a result of a number of factors, primarily the need to revise the test&rsquo;s designated cut-off value, we withdrew our 510(k)
submission in mid-2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In March 2010, we completed enrollment for an additional clinical
trial (859 patients) of our second generation ELISA-based <I>APPY1</I> test. The <I>APPY1</I> test used in that study was a single
biomarker test, based on MRP 8/14.&nbsp;The patients enrolled in this clinical trial were seen in the emergency departments of
more than a dozen well-known hospitals across the United States. The statistical analysis report for this 2010 trial, based upon
an MRP 8/14 designated cut-off value of 14, showed similar sensitivity (96%) and NPV (92%) but lower specificity (16%) than seen
in the 2008 trial.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We performed, in conjunction with our consultants and scientific
advisors, significant secondary analyses of the 2010 clinical trial results and data to explore the observed change in specificity
in the 2010 trial as compared to the 2008 trial. These analyses suggested that the apparent differences between the two studies
were primarily due to the conditions of transport for samples from the sites to the central laboratory, where the testing was conducted,
in the 2010 trial. An increase in <I>APPY1</I> test values that occurred in the &ldquo;pre-measurement&rdquo; phase between blood
draw at the hospital and the testing at the central laboratory, which involved sample handling, time and transportation, resulted
in an apparent increased level of false positives and, accordingly, decreased specificity. As a result of these analyses, we determined
that we would not file a 510(k) premarket notification with the FDA based on the results of the 2010 clinical trial, primarily
due to the low specificity observed in the study not meeting the success criteria specified in the study&rsquo;s statistical analysis
plan. Although the analysis of the 2010 clinical trial results was able to identify the likely source of the performance problems,
conclusions based on such a post hoc analysis would not be deemed to be acceptable performance evidence by the FDA for filing a
510(k).&nbsp;&nbsp;A primary objective of originally developing the <I>APPY1</I> ELISA-based product was to serve as the predicate
for the rapid, single-use cassette version of the <I>APPY1</I> assay.&nbsp;&nbsp;We believe that the poor performance arising from
the pre-measurement sample handling should be mitigated by the cassette version of <I>APPY1</I>, which will be run on site in the
hospital&rsquo;s CLIA-certified laboratory shortly after the patient&rsquo;s blood has been drawn in the current pivotal trial.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In late 2011, we completed enrollment and, in early 2012, completed
the analysis of the data for the pilot study (approximately 500 patients) of our <I>APPY1</I> test as discussed above. This pilot
study, which was based on the current <I>APPY1 </I>multi-marker panel, involved pediatric and adolescent patients aged 2 to 20
with symptoms suspicious for acute appendicitis who were enrolled from 11 hospital sites across the country. Based upon data obtained
from samples from the pilot study, we measured MRP 8/14 values using both our cassette-based reader system as well as the ELISA-based
test.&nbsp;&nbsp;As part of our development validation and research process, we also measured values for a number of other biomarkers
using internal assays.&nbsp;&nbsp;As part of the patient enrollment and sample collection, we also obtained numerous subjective
and objective data points for each subject.&nbsp;&nbsp;This included the patient&rsquo;s WBC count as processed by the hospital.&nbsp;In
this pilot study group, after performance of the initial physical assessment by emergency department personnel, approximately 100
patients were either discharged or immediately transferred to surgery. The remaining 397 patients with abdominal pain suspicious
for acute appendicitis were analyzed with <I>APPY1</I> and also were subjected to imaging procedures as follows: 309 patients underwent
ultrasound, 185 patients went to CT scan including 97 patients whose results were indeterminate on ultrasound. Retrospective analysis
shows that 43% of the patients who underwent CT scans and 46% of the patients who underwent ultrasound were negative (at low risk)
for appendicitis by the <I>APPY1</I> test. The results of this pilot study showed NPV of 97%, sensitivity of 96% and specificity
of 43%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Following completion of the 2010 clinical trial and the 2011
pilot study, we focused our <I>APPY1</I> product development efforts on eliminating potential performance issues, such as those
caused by the transport of specimens, determined to conduct future clinical trials using the cassette version of <I>APPY1</I>,
and evaluated whether the assessment of additional biomarkers would have a positive effect on improving the NPV, sensitivity and
specificity of <I>APPY1</I>. The results of these development efforts are the current <I>APPY1</I> product candidate. We are using
this <I>APPY1</I> product candidate in the pivotal clinical trial described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Current Clinical Trial</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In August 2012, we provided a pre-investigational device exemption
(pre-IDE) submission to the FDA and had a meeting with the FDA in September 2012, as well as follow-up communications in January
2013. This submission and subsequent meetings documented the planned regulatory path for <I>APPY1</I>, which we believe to be de-novo
510(k), as well as achieved agreement on the statistical analysis plan and protocol for the pivotal clinical trial. This cooperative
approach with the FDA led to an enhanced clinical trial protocol and proposed intended use statement for <I>APPY1</I>. In January
2013, we began enrolling patients into our pivotal clinical trial in the United States.&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The <I>APPY 1</I> pivotal clinical trial is similar in design
to the 2011 pilot study. The enrollment criteria for patients are aged 2 to 20 with abdominal pain with some suspicion of appendicitis.
Patients identified as being at very high risk of appendicitis are excluded from the trial. Immediately following patient enrollment,
blood is drawn and immediately transported to the on-site clinical laboratory at the hospital, where the sample is processed by
hospital lab technicians, and <I>APPY 1</I> test is performed on the APPY reader. This specimen workflow differs from that in the
2010 clinical trial and 2011 pilot study where samples were packaged and shipped to us for analysis. In addition to the in-house
sample testing, hospital personnel will collect additional clinical information for each patient enrolled in the pivotal clinical
trial, including initial clinical impressions and the results of any imaging ordered on the patient. This information is captured
on a clinical data sheet and transported to an independent data management company, and the results are entered in a master database.
Final patient diagnosis (confirmed acute appendicitis or negative for appendicitis) is also entered into the database. All information,
including <I>APPY1</I> results, is blinded to Venaxis as well as the principal investigators. Based on our statistical analysis
plan, we intend to enroll 2000 evaluable patients in the trial from 28 U.S. based hospitals. We intend to complete patient enrollment
and complete data entry in the fourth quarter of 2013, and make a submission to the FDA as soon as practical after such completion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Commercialization and Marketing</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In late 2012, we completed the steps required for a conformity
mark under the European Economic Area (CE marking) for the <I>APPY1</I> product. We were notified in January 2013 that we had obtained
CE marking in Europe for <I>APPY1</I>. We are advancing on commercialization and marketing activities of <I>APPY1</I> in the European
Union, employing the clinical data gathered to date.&nbsp;&nbsp;During the initial launch phase, we expect key market development
activities will include working to identify and sign collaboration agreements with key opinion leader hospitals for the purpose
of completing well-defined outcome studies over the coming months.&nbsp;&nbsp;The studies are designed to further demonstrate the
clinical utility and economic value of <I>APPY1</I> in Europe. They are expected to help us determine the product&rsquo;s precise
marketing approach as we move into the second phase of the EU launch, a full-scale distribution and sales effort for <I>APPY1</I>,
which is anticipated later in 2013.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have entered into commercial development agreements with
a number of diagnostic test distributors in the U.K., Italy, France, Germany, Turkey&nbsp;and the Benelux countries. Under these
commercial development agreements, we are working to roll out our market development program for <I>APPY1</I>, including identification
of initial hospitals and key opinion leaders in the European territories in which we are focused. Our strategy is to leverage the
experience of key opinion leaders in select hospitals in order to generate additional meaningful, multinational field data for
<I>APPY1</I> products. We have received initial stocking orders for our APPY1 products under these relationships.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The <I>APPY1</I> test is expected to be sold into the emergency
medicine diagnostic market. If cleared by the FDA for sales in the U.S., we expect the test will be the only commercially available
blood test specifically designed to aid in the evaluation of acute appendicitis for children and young adult patients. We therefore
believe there is a significant worldwide market opportunity for this product.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,93,87)"><FONT STYLE="color: #465361">Sales of
<I>APPY1</I> will depend at least in part on the extent to which emergency departments, hospitals and physicians conclude that
the product has clinical utility, is cost effective and/or contributes to the reduction in the use of imaging procedures in patients
at low risk for appendicitis.&nbsp; We expect to complete clinical utility and economic outcome studies as part of our European
market development activities in 2013.&nbsp; Additional similar U.S.-based studies will be completed if FDA approval is obtained.&nbsp;
&nbsp;</FONT></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I></I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Raw Materials and Suppliers</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our <I>APPY1</I> products include an APPY reader instrument
and the consumable test products consisting of test cassettes, controls and packaging. The APPY reader is manufactured for us by
a well-established vendor based in Germany. Currently, all readers are shipped to our facility in Castle Rock, Colorado for final
testing and release prior to shipment to customers and clinical trial sites. Consumable test product components are manufactured
at our facility. Raw materials and certain sub-components are acquired from a number of suppliers. All significant vendors are
qualified based upon a quality review, which may also include on-site quality audits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Distribution Methods</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Having recently obtained CE marking, we are advancing commercial
and marketing activities in the E.U. The initial target countries for our commercialization focus are the U.K., Italy, France, Germany,
Turkey&nbsp;and the Benelux countries. We have entered into commercial development agreements with diagnostic test distributors
in these countries and have identified initial hospitals to target. Our strategy is to leverage the experience of key opinion leaders
from these hospital sites in order to generate additional meaningful, multinational field data for <I>APPY1</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">If FDA clearance of <I>APPY1 </I>is obtained,
direct sales activities would commence in the U.S. At this time, there are no plans to use third party distributors in the U.S.
Customer fulfillment of purchase orders are anticipated to be made via direct shipments from our facility to the customer. Sales
and marketing support is expected to be via a limited direct sales force and a customer web portal.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"><B>Animal Healthcare</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Effective May 1, 2004, we entered into an Exclusive License
Agreement (WU License Agreement) with Washington University in St. Louis (WU), which granted us exclusive license and right to
sublicense WU&rsquo;s technology (as defined under the WU License Agreement) for veterinary products worldwide, except where such
products are prohibited under U.S. laws for export. The term of the WU License Agreement continues until the expiration of the
last of WU&rsquo;s patents (as defined in the WU License Agreement).&nbsp;&nbsp;We have agreed to pay minimum annual royalties
of $20,000 annually during the term of the WU License Agreement and such amounts are creditable against future royalties and other
payments.&nbsp;Royalties payable to WU under the WU License Agreement for covered product sales by us, directly or indirectly,
carry a mid-single digit royalty rate and for sublicense fees received by us&nbsp;carry a low double-digit royalty rate.&nbsp;&nbsp;The
WU License Agreement contains customary terms for confidentiality, prosecution and infringement provisions for licensed patents,
publication rights, indemnification and insurance coverage.&nbsp;&nbsp;The WU License Agreement is cancelable by us with 90 days
advance notice at any time and by WU with 60 days advance notice if we materially breach the WU License Agreement and fail to cure
such breach in a designated period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In July 2012, we entered into an Exclusive License Agreement
(License Agreement) with a licensee (Licensee), under which we granted the Licensee an exclusive royalty-bearing license to our
intellectual property and other assets, including patent rights and know-how, relating to recombinant single chain reproductive
hormone technology for use in our animal health assets.&nbsp;&nbsp;The License Agreement includes a sublicense of the technology
licensed to us by WU and a license to the assets acquired from Novartis under the Novartis termination agreement described below.
Under the terms of the WU License Agreement, a portion of license fees and royalties we receive from&nbsp;sublicensing agreements
will be paid to WU.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under the License Agreement, the Licensee obtained a worldwide
exclusive license to develop, seek regulatory approval for and offer to sell, market, distribute, import and export luteinizing
hormone (LH) and/or follicle-stimulating hormone (FSH) products for bovine (cattle), equine and swine in the field of the assistance
and facilitation of reproduction in bovine, equine and swine animals.&nbsp;&nbsp;We also granted the Licensee an option and right
of first refusal to develop additional animal health products outside of the licensed field of use or any diagnostic pregnancy
detection tests for non-human mammals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The animal health technology licensed from WU in 2004 was sub-licensed
in 2008 to Novartis Animal Health, Inc. (Novartis) under a long-term world-wide development and marketing agreement. In November
2011, we entered into a termination agreement with Novartis to terminate the Novartis license agreement.&nbsp;&nbsp;Under the Novartis
termination agreement, the original termination obligation totaled $1,374,000. The remaining outstanding termination obligation
at March 31, 2013 was approximately $201,000, which is due in 2013. Upon execution of the Novartis termination agreement, we recorded
a gain of $938,896, arising from the elimination of both the then remaining deferred revenue and the net accounts payable to Novartis,
the total of which exceeded the net total settlement obligation to Novartis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Human Diagnostic Antigens</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We formerly supplied purified proteins for diagnostic applications
to large medical diagnostic companies and research institutions. Our human antigens products were purified from human tissue or
fluids. We manufactured and sold approximately 20-30 purified protein products primarily for use as controls by diagnostic test
kit manufacturers and research facilities, to determine whether diagnostic test kits are functioning properly. As a result of focusing
our activities on the <I>APPY1</I> blood-based human diagnostic test, we substantially terminated operations of the antigen business
in the first quarter of 2011. In 2012 and 2011, we had approximately $42,000 and $219,000, respectively, in revenue from wind-down
sales of these products.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Intellectual Property</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>APPY1 Intellectual Property</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Beginning in 2004, we initiated the establishment of an intellectual
property portfolio for the acute appendicitis testing technology and products that have been used in the development of <I>APPY1</I>.
We have filed for and are pursuing extensive patent coverage related to several aspects of the initial discovery and various test
applications. Further enhancement and expansion of our intellectual property positions are ongoing with respect to the scope of
protection for our first generation and future generation versions of the <I>APPY1</I> test. Scientific and technical progress
remains the basis for these efforts. In March 2009, the USPTO issued our patent directed to methods relating to our MRP 8/14-related
appendicitis diagnostic technology. This patent, No. 7,501,256, expiring February 7, 2026, is entitled &lsquo;Methods and Devices
for Diagnosis of Appendicitis&rsquo;.&nbsp;&nbsp;Additional U.S. patents, 7,659,087 and 7,670,789, were issued on February 9, 2010
and March 2, 2010, respectively, and both expire on July 25, 2025. At this time, patents have been issued in the following foreign
countries: Australia, Hong Kong, Israel, Japan, New Zealand, Singapore, and South Africa.&nbsp;&nbsp;A patent was also granted
by the European Patent Office and subsequently validated in the following European countries: Belgium, Switzerland, Germany, Spain,
France, The United Kingdom, Ireland, Italy, the Netherlands and Sweden.&nbsp;&nbsp;Additionally, there are several patent applications
currently in prosecution in several foreign countries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In late 2012, additional U.S. utility and PCT patent applications
were filed for the appendicitis testing technology and products.&nbsp;&nbsp;The patent filings focus on the newly developed multiple-marker
technology, providing patent coverage for using the MRP8/14 levels in a given sample in conjunction with CRP levels and WBC among
a number of other evaluated marker combinations in order to provide an increasingly robust test to aid in the management of low
risk patients suspicious for appendicitis.&nbsp;&nbsp;Additionally, the patent filings claim a method for ruling out appendicitis
based on multiple markers, a device or system for assessing a subject based on a plurality of markers, and a kit or device to determine
the value of a biomarker in a given sample.&nbsp;&nbsp;Currently, these filings are in application phase and not yet granted in
any specific countries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In May 2003, we entered into an Assignment and Consultation
Agreement (the Bealer Agreement) with Dr. John Bealer. The Bealer Agreement transferred to us ownership rights from Dr. Bealer
for inventions and related improvements to technology associated with human appendicitis diagnostics involving protein antigens.
The consideration for the Bealer Agreement was the payment of a future royalty to Dr. Bealer based upon a low double digit rate
applied to revenues, all as defined under the Bealer Agreement.&nbsp;&nbsp;The Bealer Agreement contains confidentiality provisions,
provides for the assignment of all patent rights to us (which has occurred) and restrictions on the assignability of the agreement.&nbsp;&nbsp;The
Bealer Agreement continues for the longer of 20 years or the expiration of the last of our applicable patents.&nbsp;&nbsp;We may
terminate the Bealer Agreement if we in our reasonable judgment decide we have no interest in pursuing the opportunity as defined
under the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Animal Health</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our animal health patent portfolio originated under the exclusive
license agreement with WU, under which we obtained intellectual property rights to their patent estate outlined in the agreement.&nbsp;&nbsp;This
extensive portfolio consists of both patents and pending patent applications (approximately 25 patents and numerous patent applications)
related to our animal health products under development. The term of the WU license agreement ends upon the expiration of the last
patent to expire. Patents in the estate begin to expire in 2013, with the last of the current patents set to expire in 2028.&nbsp;&nbsp;WU
has filed, and continues to file, patent applications to expand and extend the patent coverage of the WU technology.&nbsp;&nbsp;We
reimburse WU for the costs of such patent filings, namely prosecution and maintenance fees.&nbsp;&nbsp;Additional patents in the
animal health portfolio have been filed by us outside of the agreement with WU.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A patent filing for the recombinant luteinizing hormone (rLH)
technology was submitted in 2004, entitled &ldquo;Methods and Kits for Maintaining Pregnancy, Treating Follicular Cysts, and Synchronizing
Ovulation Using Luteinizing Hormone.&rdquo;&nbsp;&nbsp;This patent family claims methods of administering rLH, the timing of administration,
and dosage given in order to increase formation of accessory corpora lutea and maintain pregnancies in treated animals.&nbsp;&nbsp;To
date, three foreign patents have been granted for &ldquo;Methods and Kits for Maintaining Pregnancy, Treating Follicular Cysts,
and Synchronizing Ovulation Using Luteinizing Hormone&rdquo;, New Zealand patent 542549 was granted March 12, 2009 (expiring March
2024), Australia 2004218365 was granted May 27, 2010 (expiring March 2024) and European patent 1610803 was granted December 15,
2010 (expiring March 2024). The patent granted by the European Patent Office and has been validated in the following countries:
Belgium, France, Germany, Ireland, Italy, The Netherlands, Spain, Switzerland, and the United Kingdom. Currently, there are additional
foreign patent applications that are in prosecution.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A patent filing for the recombinant bovine follicle stimulating
hormone (rbFSH) technology was submitted in 2008, entitled &ldquo;Compositions and Methods Including Expression and Bioactivity
of Bovine Follicle Stimulating Hormone.&rdquo;&nbsp;&nbsp;This patent family claims the rbFSH single-chains itself, as well as
methods of administering rbFSH, the timing of administration, and dosage given in order to increase reproduction, induce superovulation
or increase embryo production in ungulates.&nbsp;&nbsp;The patent family includes filings in the following countries: Argentina,
Australia, Canada, New Zealand, Thailand, and the United States.&nbsp;&nbsp;The patent has also been filed with the European Patent
Office.&nbsp;&nbsp;In October of 2011, the first patent in this family was granted by the European Patent Office (2134165).&nbsp;&nbsp;The
patent has also been granted in New Zealand (579740).&nbsp;&nbsp;Following the grant of the patent in 2011 by the European Patent
Office, the patent was validated in the following countries: France, Germany, Italy, and The Netherlands.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A patent filing for the equine follicle stimulating hormone
technology (eFSH) was filed in 2008, entitled &ldquo;Activity of Recombinant Equine Follicle Stimulating Hormone.&rdquo;&nbsp;&nbsp;This
patent family provides coverage for the single chain eFSH itself, methods of administering reFSH, the timing of administration,
and dosage given in order to increase reproductive activity in treated animals. To date, one patent has been allowed in the patent
family in China, and is set to grant in the second quarter of 2013. Currently, additional foreign patent applications are in prosecution.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Two separate patent applications relating to cattle pregnancy
have been filed by us.&nbsp;&nbsp;A patent filing for the Bovine Pregnancy test technology was filed in 2007, entitled &ldquo;Bovine
Pregnancy Test.&rdquo;&nbsp;&nbsp;This patent family provides coverage for an assay device designed to detect pregnancy, the specific
specifications of the device, for the antibodies used in the assay, as well as the type of sample used and the species for which
the test is effective in detecting pregnancy.&nbsp;&nbsp;The parent application was granted in the United States in 2008 (U.S.
Patent No. 7,393,696) and expires on May 30, 2025. The divisional application was granted in 2010 (U.S. Patent No. 7,687,281) and
expires on May 6, 2023.&nbsp;&nbsp;Additionally, a patent filing for pregnancy detection was filed in 2003, entitled &ldquo;Pregnancy
Detection.&rdquo;&nbsp;&nbsp;This patent family provides coverage for an immunoassay test device, the specific specifications of
the device, and for the antibodies used in the assay as well as the type of sample used.&nbsp;&nbsp;The patent has been issued
in the following counties: Australia (No. 2003243199), New Zealand (No. 536229 &amp; 572488), and the United States (No. 7,842,513),
each of which expires on May 2, 2023.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>General Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Backlog and Inventory </I></B>&mdash; As a result of our
activities being focused on <I>APPY1</I> product development, we do not currently expend large amounts of capital to maintain a
human antigen inventory. We have developed and identified reliable sources of raw material and components as we progress towards
commercialization of the <I>APPY1</I> test.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Payment Terms </I></B>&mdash; Historically in connection
with our human antigen business we did not provide extended payment terms, other than to support certain new product introductions,
and then with terms of no more than 60 days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Revenues </I></B>&mdash; Historically the majority of
our revenues have come from U.S. customers of our human antigen business with no long-term supply agreements and orders processed
on a purchase-order basis. Three customers accounted for $34,000 of the total 2012 sales and individually represented 40%, 30%
and 13% of such sales. During the year ended December 31, 2012, two European-based customers accounted for a total of 3% of our
net sales, and for the years ended December 31, 2011 and 2010, one European-based customer accounted for a total of 3% and 4%,
respectively, of our net sales. Other than as described above, for all periods presented, our revenues have been generated in the
U.S.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Research and Development</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We expended approximately $1,412,000 on total research and development
in the three months ended March&nbsp;31, 2013, $3,838,000 in the year ended December&nbsp;31, 2012, $5,666,000 in year ended December
31, 2011 and $6,112,000 in the year ended December 31, 2010. We anticipate that total expenditures for research and development
for the year ending December 31, 2013 will increase as compared to the amounts expended in 2012, due primarily to the conduct of
the <I>APPY1</I> clinical trial in the U.S. during 2013 that is expected to enroll approximately 2,000 patients.&nbsp;&nbsp;These
costs will be somewhat offset by lower expected product development expenses in 2013.&nbsp;&nbsp;Research and development activities
for the animal health business are expected to be covered by the licensee in 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our principal development product consists of the acute appendicitis
test, <I>APPY1</I>. Development and clinical test costs in support of <I>APPY1</I>, as well as costs to file and prosecute patents
and patent applications related to our technologies, will continue to be substantial. As we continue towards commercialization
of this product, including evaluation of strategic alternatives to effectively maximize the value of our technology, we will need
to consider a number of alternatives, including possible capital raising or other transactions and partnering opportunities, working
capital requirements including possible product management and distribution alternatives and implications of product manufacturing
and associated carrying costs. Different agreements will have different cost implications.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have entered and expect to continue to enter into additional
agreements with contract manufacturers for the development and manufacture of certain of our products and system components for
which we are seeking or plan to seek FDA clearance. The ultimate goal of this development process confirming current good manufacturing
practices (cGMP) manufacturing compliance required for those products for which we are seeking FDA clearance. We enter into discussions
from time to time with various potential manufacturers who meet full cGMP requirements and are capable of large-scale manufacturing
batches of our medical devices, and who can economically manufacture them to produce our products at an acceptable cost. These
development and manufacturing agreements generally contain transfer fees and possible penalty and/or royalty provisions if we transfer
our products to another contract manufacturer. We expect to continue to evaluate, negotiate and execute additional development
and manufacturing agreements, some of which may be significant commitments during 2013. We may also consider acquisitions of development
technologies or products, if opportunities arise that we believe fit our business strategy and would be appropriate from a capital
standpoint.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Regulatory Matters</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>FDA</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The FDA has regulatory marketing authority in the United States
over our <I>APPY1</I> products. Venaxis operates under ISO13485:2003 standards for cGMP manufacturing of medical devices.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The FDA&rsquo;s Center for Devices and Radiological Health (CDRH)
is responsible for regulating firms who manufacture, repackage, re-label and or import medical devices sold in the United States.
Medical devices are classified into Class I, II and III. Our <I>APPY1</I> acute appendicitis test is anticipated to be classified
as a non-invasive Class II medical device by the FDA, which will require de novo Premarket Notification 510(k) clearance. Generally,
FDA product clearance for diagnostic products is granted after specific clinical trials and quality control requirements have been
achieved to the agency&rsquo;s satisfaction.&nbsp;&nbsp;There is no assurance that we will obtain FDA clearance to market our acute
appendicitis test.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Any product clearances (or approvals) that are granted remain
subject to continual FDA review, and newly discovered or developed safety or efficacy data may result in withdrawal of products
from the market. Moreover, if such clearance is obtained, the manufacture and marketing of such products remain subject to extensive
regulatory requirements administered by the FDA and other regulatory bodies, including compliance with cGMP, adverse event reporting
requirements and the FDA&rsquo;s general prohibitions against promoting products for unapproved or &ldquo;off-label&rdquo; uses.
Manufacturers are subject to inspection and market surveillance by the FDA for compliance with these regulatory requirements. Failure
to comply with the requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions,
suspensions or withdrawals of regulatory approvals, operating restrictions and civil or criminal prosecutions. Any such enforcement
action could have a material adverse effect on our business. Unanticipated changes in existing regulatory requirements or the adoption
of new requirements could also have a material adverse effect on our business.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>European Regulations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In the European Union, in vitro diagnostic (IVD) medical devices
are regulated under EU-Directive 98/79/EC (IVD Directive), and related provisions. The IVD Directive requirements include the safety
and efficacy of the devices. According to the IVD Directive, the EU members presume compliance with these essential requirements
in respect of devices which are in conformity with the relevant national standards transposing the harmonized standards of which
the reference numbers have been published in the Official Journal of the European Communities. These harmonized standards include
ISO 13485:2003, the quality standard for medical device manufacturers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">IVD medical devices must bear the CE marking of conformity when
they are placed on the market in the European Union. The CE mark is a declaration by the manufacturer that the product meets all
the appropriate provisions of the relevant legislation implementing the relevant European Directive. As a general rule, the manufacturer
must follow the procedure of the EC Declaration of Conformity to obtain this CE marking. Each European country must adopt its own
laws, regulations and administrative provisions necessary to comply with the IVD Directive. In January 2013, we obtained CE marking
for <I>APPY1</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Environmental Protection</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We are subject to various environmental laws pertaining to the
disposal of hazardous medical waste. We contract for disposal of our hazardous waste with a licensed disposal facility. We do not
expect to incur liabilities related to compliance with environmental laws; however, we cannot make a definitive prediction. The
costs we incur in disposal of hazardous waste have not been significant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Other Laws</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We are also subject to other federal, state and local laws pertaining
to matters such as safe working conditions and fire hazard control.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Glossary of Terms</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We define below certain technical terms used in this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Algorithm &mdash; a set of rules that precisely defines a sequence
of operations, in the case of <I>APPY1</I> using a mathematical computation in a software program</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Biomarker tests &mdash; tests that identify and quantify markers
associated with disease or medical condition</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">cGMP &mdash; current Good Manufacturing Practice</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Complete Blood Count (CBC) &mdash; a blood test used to evaluate
overall health and detect a wide range of disorders, including anemia, infection and leukemia</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">CRP &mdash; C-reactive protein. CRP is a protein produced in
the liver and found in the blood, the levels of which rise in response to inflammation</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">De Novo Classification &ndash;a mechanism defined by the FDA
Modernization Act (Section 513(f)) for classifying new medical devices for which there is no predicate, providing the product with
a risk-based Class II classification allowing clearance under as a 510(k)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">ELISA (Enzyme Linked Immunosorbant Assay) &mdash; immunological
method used to test a sample for a protein marker</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Genomics &mdash; the study of the genomes of organisms</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Immunoassay-based &mdash; test that uses antibody-antigen interaction
as method of measure</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Multi-marker test &mdash; a diagnostic or other test that uses
multiple protein biomarkers as part of a diagnostic test panel</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Proteomics &mdash; the study of an organism&rsquo;s complete
complement of proteins</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Recombinant &mdash; Novel DNA made by genetic engineering</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">WBC &mdash; White blood cell count. The white blood cells are
analyzed from a blood sample collected as part of a standard protocol for patients suspected of having infections who have entered
the emergency department of a hospital</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>PROPERTIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We maintain our administrative office, laboratory and production
operations in a 40,000 square foot building in Castle Rock, Colorado, which was constructed for us in 2003. We presently do not
plan any renovation, improvements or development of this property. We may utilize a portion of the currently unused space, which
amounts to approximately 14,000 square feet, for expansion or to lease at some point in the future. We believe that our facilities
are adequate for our near-term needs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We own the property subject to a mortgage with an outstanding
balance of approximately $2,403,000 at March 31, 2013, payable in monthly installments of approximately $23,500 and bearing interest
at an approximate average rate of 7%.&nbsp;&nbsp;The commercial bank portion of the mortgage has a balloon payment of approximately
$1.6 million payable in July 2013. On May 9, 2013, we entered into the Modification Agreement with the Bank to refinance the outstanding
commercial loan. The loan is collateralized by the real property. The Modification Agreement extends the maturity date to April
2018 and reduces the interest rate to a fixed interest rate of 3.95% from a variable rate equal to 1% over The Wall Street Journal
Prime Rate (with a minimum rate of 7%). The loan terms include a payment amortization period of fifteen years, with a balloon maturity
at five years. The portion of the building mortgage loan guaranteed by the SBA, which
is approximately 34% of the current loan total, remains unaffected by the Modification Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>LEGAL PROCEEDINGS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On October 1, 2010, we received a complaint, captioned John
Wolfe, individually and on behalf of all others similarly situated v. AspenBio Pharma, Inc. (now Venaxis, Inc.) et al., Case No.
CV10 7365 (&ldquo;Wolfe Suit&rdquo;). This federal securities purported class action was filed in the U.S. District Court in the
Central District of California on behalf of all persons, other than the defendants, who purchased our common stock during the period
between February 22, 2007 and July 19, 2010, inclusive. The complaint named as defendants certain officers and directors of the
Company during such period. The complaint included allegations of violations of Section 10(b) of the Exchange Act and SEC Rule
10b-5 against all defendants, and of Section 20(a) of the Exchange Act against the individual defendants, all related to our blood-based
acute appendicitis test in development. On our motion, this action was also transferred to the U.S. District Court for the District
of Colorado by order dated January 21, 2011. The action was assigned a District of Colorado Civil Case No. 11-cv-0165-REB-KMT.
On July 11, 2011, the court appointed a lead plaintiff and approved lead counsel. On August 23, 2011, the lead plaintiff filed
an amended putative class action complaint.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On October 7, 2011, we filed a motion to dismiss the amended
complaint. On September 13, 2012, the United States District Court for Colorado granted our motion to dismiss, dismissing the plaintiffs&rsquo;
claims against all defendants without prejudice. On September 14, 2012, the court entered Final Judgment without prejudice on behalf
of all defendants and against all plaintiffs in the Wolfe Suit. The Order to dismiss the action found in favor of us and all of
the individual defendants. On October 12, 2012, the plaintiffs filed a Notice of Appeal of the Order granting the motion to dismiss
and of the Final Judgment in the Wolfe Suit. The plaintiffs filed their opening brief with the Tenth Circuit Court of Appeals on
March 1, 2013. We filed our answering brief with the Tenth Circuit Court of Appeals on April 8, 2013. We and the individual defendants
believe that the plaintiffs&rsquo; allegations are without merit, have vigorously defended against these claims, and intend to
continue to do so.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On January 4, 2011, a plaintiff filed a complaint in the U.S.
District Court for the District of Colorado captioned Frank Trpisovsky v. Pusey, et al, Civil Action No. 11-cv-00023-PAB-BNB, that
purports to be a shareholder derivative action on behalf of us against thirteen individual current or former officers and directors.
The complaint also names us as a nominal defendant. The plaintiff asserts violations of Section 14(a) of the Exchange Act, SEC
Rule 14a-9, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. On motion of the Company and the individual
defendants, the U.S. District Court has stayed this derivative action by order dated March 15, 2011. On October 18, 2012, the parties
filed a Joint Status Report, reporting on updates in the Wolfe Suit and stating that the stay should remain in place at this time
and that a further status report should be submitted after the appeal in the Wolfe Suit has been resolved. On October 25, 2012,
the magistrate judge issued a recommendation that the case be administratively closed, subject to reopening for good cause. The
U.S. District Court on November 14, 2012, accepted the recommendation and ordered this action administratively closed, subject
to reopening for good cause.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In the ordinary course of business and in the general industry
in which we are engaged, it is not atypical to periodically receive a third party communication which may be in the form of a notice,
threat, or &lsquo;cease and desist&rsquo; letter concerning certain activities.&nbsp;&nbsp;For example, this can occur in the context
of our pursuit of intellectual property rights.&nbsp;&nbsp;This can also occur in the context of operations such as the using,
making, having made, selling, and offering to sell products and services, and in other contexts.&nbsp;&nbsp;We make rational assessment
of each situation on a case-by-case basis as such may arise.&nbsp;&nbsp;We periodically evaluate our options for trademark positions
and consider a full spectrum of alternatives for trademark protection and product branding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We are not a party to any other legal proceedings, the adverse
outcome of which would, in our management&rsquo;s opinion, have a material adverse effect on our business, financial condition
and results of operations.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our executive officers are elected by the Board of Directors,
and serve for a term of one year and until their successors have been elected and qualified or until their earlier resignation
or removal by the Board of Directors. There are no family relationships among any of our directors and executive officers. None
of the executive officers or directors has been involved in any legal proceedings of the type requiring disclosure during the past
five years. Further, there is no arrangement or understanding between any director and us pursuant to which he or she was selected
as a director. Mr.&nbsp;Lundy, Mr.&nbsp;McGonegal and Mr.&nbsp;Hurd have employment agreements in place with us with respect to
their executive officer positions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following table sets forth names and ages of all of our
executive officers and directors and their respective positions with us as of the date of this prospectus:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 28%; text-align: center; border-bottom: Black 1pt solid"><B>Name</B></TD>
    <TD STYLE="width: 1%; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: center; border-bottom: Black 1pt solid"><B>Age</B></TD>
    <TD STYLE="width: 1%; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 62%; text-align: center; border-bottom: Black 1pt solid"><B>Position</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Stephen T. Lundy</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">51</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Chief Executive Officer, President and a Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Gail S. Schoettler</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">69</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Non-Executive Chair and a Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Susan A. Evans</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">66</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Daryl J. Faulkner</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">64</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>John H. Landon</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">72</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>David E. Welch</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">66</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Stephen A. Williams</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">54</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Donald R. Hurd</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">61</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Commercial Officer, Senior Vice President</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Jeffrey G. McGonegal</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD STYLE="text-align: center">62</TD>
    <TD>&nbsp;&nbsp;</TD>
    <TD>Chief Financial Officer and Secretary</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Board of Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Stephen T. Lundy</U> was appointed to the positions of Chief
Executive Officer and President on March 24, 2010. Effective on the same date, he was appointed to our Board of Directors. Mr.&nbsp;Lundy
has more than 20 years of experience in drug and diagnostic product development and commercialization. He most recently was Chief
Executive Officer of MicroPhage from 2008 to 2010. Mr.&nbsp;Lundy was Senior Vice President of sales and marketing for Vermillion
from 2007 to 2008. Mr.&nbsp;Lundy joined Vermillion from GeneOhm (2003-2007), a division of Becton, Dickinson and Company Diagnostics,
where he served as Vice President of Sales and Marketing. At GeneOhm, Mr.&nbsp;Lundy successfully led the commercial launch of
several novel molecular diagnostic assays including the first molecular test for Methicillin resistant Staphylococcus aureus. From
2002 to 2003, Mr.&nbsp;Lundy served as Vice President of Marketing for Esoterix, Inc., which was acquired by Laboratory Corporation
of America, and he led the commercial integration and re-branding of the numerous reference labs acquired by Esoterix. Prior to
Esoterix, he served as Marketing Director for Molecular Diagnostics and Critical Care Testing at Bayer Diagnostics Corporation.
Mr.&nbsp;Lundy graduated from the United States Air Force Academy with a B.S. degree and was an officer with the United States
Air Force from 1983 to 1988.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Gail S. Schoettler</U> has served on our Board since August
2001. She is a member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee.
In October 2010, Ms.&nbsp;Schoettler became Non-Executive Chair of the Board. She also serves on the board and is a member of the
audit committee of Delta Dental of Colorado, a non-profit dental insurance company. She serves on the boards of The Colorado Trust
and the Delta Dental Foundation. Former corporate board positions include: Masergy Communications, Inc., CancerVax, Inc., PepperBall
Technologies, Inc., AirGate PCS, Women&rsquo;s Bank, Equitable Bancshares of Colorado, the Colorado Public Employees Retirement
Association and Fischer Imaging. She has served as a U.S. Ambassador, appointed by President Clinton, and as Colorado&rsquo;s Lt.
Governor and State Treasurer. In 1998, she narrowly lost her bid for Governor of Colorado. She started two successful banks and
helps run her family&rsquo;s cattle ranch (where she grew up), vineyards, and real estate enterprises. She and her husband own
a travel company that focuses on introducing business and community leaders to their counterparts overseas as well as to other
countries&rsquo; cultures, economies, and history. She earned a B.A. in economics from Stanford and M.A. and Ph.D. degrees in African
history from the University of California at Santa Barbara. Among her numerous awards is the French Legion of Honor (France&rsquo;s
highest civilian award) from President Jacques Chirac of France.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Susan Evans, Ph.D., FACB</U><B> </B>was appointed to our
Board of Directors in December 2012 and is a member of the Audit Committee.<B> </B>Dr. Evans is the Vice President, Scientific
Affairs, of the Beckman Coulter division of Danaher, Inc., a position she has held since 2006. Previously she served as Vice President,
Corporate Strategic Planning for Beckman Coulter from January 2010 to July 2011, and as Vice President and General Manager of Agencourt
Bioscience, a Beckman Coulter company from December 2006 to January 2010. She has more than 30 years of experience in the diagnostic
industry, holding leadership positions in research and development and now general management. She has developed assays for analytes
in the areas of endocrinology, fertility, cardiac markers and therapeutic drug monitoring. Dr.&nbsp;Evans has been involved with
the American Association of Clinical Chemistry (AACC) since the 1980s, when she served as an officer in the Florida section and
continued with local section activities in San Diego and Chicago. Her service to the AACC on the national level includes being
elected to the board of directors, as national secretary, and as president in 2003. She chaired the Program Coordinating Commission
twice, was one of the founding members of the Industry Division, and is vice chair of the 2008 Annual Meeting Organizing Committee.
She currently chairs the Van Slyke Foundation Board of Trustees and the Awards Committee of the AACC.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Daryl J. Faulkner</U> was appointed to our Board of Directors
in the newly created position of Executive Chairman on January 19, 2009 and on February 10, 2009, was appointed to serve as our
interim Chief Executive Officer. Mr.&nbsp;Faulkner resigned from the position of interim Chief Executive Officer as of March 24,
2010, upon the hiring of Mr.&nbsp;Lundy, and the position of Chairman in October 2010. He continues to serve as a director and
he is a member of our Audit Committee and chair of the Nominating and Corporate Governance Committee. Mr.&nbsp;Faulkner has more
than 25 years&rsquo; experience in developing and commercializing medical devices, drug and drug delivery systems, life science
research tools, and molecular diagnostics. He served for approximately one year as President, CEO and a member of the Board of
Directors of Digene Corporation, a Nasdaq-traded company prior to its acquisition in July 2007 by Qiagen (traded on Nasdaq&rsquo;s
Global Select market). He served as a consultant to Qiagen, and as co-chair of the executive integration steering committee with
the CEO of Qiagen from July 2007 to January 2009. Currently, Mr.&nbsp;Faulkner also serves as a member of the board of directors
of GenMark Diagnostics, Inc. (Nasdaq:GNMK), an emerging molecular diagnostics company traded on Nasdaq. Prior to joining Digene,
Mr.&nbsp;Faulkner spent eight years with Invitrogen (now Life Technologies Corp. (Nasdaq:LIFE)) in a number of senior roles, including
SVP Europe, SVP IVGN International Operations, and SVP of Strategic Business Units. Before Invitrogen, Mr.&nbsp;Faulkner&rsquo;s
career includes 15 years with the Fortune 100 Company, Abbott Laboratories, in which he held leadership positions in manufacturing
operations and plant management. Mr.&nbsp;Faulkner received a degree in industrial relations from the University of North Carolina
and a M.A. in business management from Webster University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>John H. Landon</U> was appointed to our Board of Directors
in December 2008. He is chair of the Compensation Committee and a member of the Nominating and Corporate Governance Committee.
Mr.&nbsp;Landon&rsquo;s career includes more than 30 years of broad, multi-functional experience with the DuPont Company until
his retirement in 1996. Prior to retiring from active management, Mr.&nbsp;Landon served as Vice President and General Manager
of medical products for DuPont from 1992 to 1996. He had worldwide responsibility for all of DuPont&rsquo;s medical product businesses,
encompassing total annual sales of $1 billion and more than 5,000 employees. In addition to other director roles, Mr.&nbsp;Landon
served as Chairman of the board of Cholestech Corporation prior to its 2007 sale to Inverness Medical and as a director of Digene
Corporation prior to its 2007 sale to Qiagen. He currently is a member of the board of LipoScience, Inc., a publicly traded company
(traded on the Nasdaq Global Select market) in the in vitro diagnostics industry developing and marketing diagnostic tests based
on nuclear magnetic resonance technology. Mr. Landon is also a trustee of Christiana Care Health System and an advisor to Water
Street Healthcare Partners. Mr.&nbsp;Landon received his B.S. in chemical engineering from the University of Arizona.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>David E. Welch</U> became a director in October 2004. Mr.&nbsp;Welch
is chair of the Audit Committee and a member of the Compensation Committee. Mr.&nbsp;Welch has served since April 2004 as Vice
President and Chief Financial Officer of American Millennium Corporation, Inc., a private company (publicly traded until June 2010)
located in Golden, Colorado. Mr.&nbsp;Welch formerly served as a director of PepperBall Technologies, Inc. He also is a self-employed
financial consultant. From July 1999 to June 2002, Mr.&nbsp;Welch served as Chief Financial Officer, Secretary and Treasurer of
Active Link Communications, Inc., another publicly traded company. During 1998, he served as Chief Information Officer for Language
Management International, Inc., a multinational translation firm located in Denver, Colorado. From 1996 to 1997, he was Director
of Information Systems for Micromedex, Inc., an electronic publishing firm, located in Denver, Colorado. Mr.&nbsp;Welch also serves
on the board of directors of Communication Intelligence Corporation, a publicly traded company. He received a B.S. degree in accounting
from the University of Colorado. Mr.&nbsp;Welch is a certified public accountant, licensed in the state of Colorado.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Stephen A. Williams, MB, BS, Ph.D.</U>&nbsp;joined our Board
of Directors effective May 1, 2013 and upon joining the Board, he became a member of the Compensation Committee. Dr. Williams is
the Chief Medical Officer of SomaLogic, Inc., a position he has held since 2009. Prior thereto, he worked at Pfizer from 1989 until
2007. In 1989 he joined Pfizer U.K. in its experimental medicine division and worked on a variety of programs including asthma,
irritable bowel syndrome, migraine, depression and urinary incontinence. Dr. Williams moved to the U.S. in 1993 with Pfizer and
worked on programs in inflammatory bowel disease, stroke, psychosis and head injury. He created Pfizer&rsquo;s Clinical Technology
Group in 1997, which became a global group maintaining five research sites with the objective of validating clinical biomarkers
and measurements, and was promoted to Pfizer Vice President in 2006. Dr. Williams&rsquo; undergraduate degree is a BSc (hons) in
physiology. He trained as a physician at Charing Cross and Westminster Medical School, University of London, where he earned degrees
in surgery and medicine (MB BS) and, following his internships, returned to the same institution for a Ph.D. in medicine and physiology.
Subsequently, Dr. Williams performed three years of residency in diagnostic imaging at the University of Newcastle upon Tyne from
1989 to 1991. Dr. Williams was on the National Advisory Council to the National Institute of Biomedical Imaging and Bioengineering
from 2003 to 2007 and on the Executive Committee of the FNIH-led Biomarkers Consortium from 2005 to 2007.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Executive Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Stephen T. Lundy</U> &ndash; see above under &ldquo;Board
of Directors.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Donald R. Hurd</U> became our Chief Commercial Officer in
May 2012. He is a seasoned executive with over 30 years of experience in the medical diagnostic and device industry, having worked
in large diagnostic companies as well as start-ups. Mr. Hurd joined Venaxis from BioBehavorial Diagnostics where he most recently
served as Vice President-Sales from July 2010 to March 2012. Prior industry positions include Vice President-Marketing/Sales at
MicroPhage, Vice President North American Customer Operations, Siemens Healthcare Diagnostics, U.S. Director of Sales, Bayer Healthcare
Diagnostics. Mr. Hurd received a B.S. in business administration and is a military veteran with the United States Navy.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><U>Jeffrey G. McGonegal</U> became our Chief Financial Officer
in June 2003, was appointed Corporate Secretary in January 2010 and served as interim President in December 2004 and January 2005.
Mr.&nbsp;McGonegal served from 2003 to January 1, 2011 as Chief Financial Officer of PepperBall Technologies, Inc. Mr.&nbsp;McGonegal
also serves on a limited part-time basis as Senior Vice President &mdash; Finance of Cambridge Holdings, Ltd., a small publicly
held company with limited business activities. Mr.&nbsp;McGonegal served as Chief Financial Officer of Bactolac Pharmaceutical,
Inc. and had been associated with its predecessors through October 2006, a company (publicly held until September 2006) engaged
in manufacturing and marketing of vitamins and nutritional supplements. From 1974 to 1997, Mr.&nbsp;McGonegal was an accountant
with BDO Seidman LLP. While at BDO Seidman LLP, Mr.&nbsp;McGonegal served as Managing Partner of the Denver, Colorado office. Until
his resignation in March 2012, Mr.&nbsp;McGonegal was elected in 2005 to serve on the board of Imagenetix, Inc., a publicly held
company in the nutritional supplements industry. He received a B.A. degree in accounting from Florida State University.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Qualifications, Attributes and Skills of our Board of Directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Nominating and Corporate Governance Committee (the &ldquo;Nominating
Committee&rdquo;) screens director candidates and evaluates the qualification and skills applicable to us of the existing members
of the Board. In overseeing the nomination of candidates for election, and the qualifications and skills of incumbent directors,
the Nominating Committee, and subsequently the Board, seeks qualified individuals with outstanding records of success in their
chosen careers, the skills to perform the role of director, and the time and motivation to perform as a director. Directors are
expected to bring specialized talents to the Board that add value to the Board&rsquo;s deliberative process and advance our business
goals. The Board has determined that experience in the life sciences industries, financial and investment experience, publicly
held company experience and governmental experience are generally useful qualifications for directors, and the composition of the
Board reflects such assessment. In 2012, in connection with our re-branding, the Nominating Committee and the Board assessed the
skills and qualifications of our Board members and determined it would be helpful to recruit additional Board members with scientific,
regulatory and life sciences management skills. The appointment of Dr. Evans and Dr. Williams to the Board arose as part of those
actions. All of the incumbent directors exhibit outstanding records of success in their chosen careers and have demonstrated their
ability to devote the time and energy necessary to serve on the Board and to advance our business goals and strategies. The directors
have the following additional qualifications and skills that make them productive members of the Board:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Stephen Lundy &ndash; over 20 years&rsquo; experience in drug and diagnostic development companies, including experience leading
the commercial launch of diagnostic products and participation in merger and acquisition transactions in the industry;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Gail Schoettler &ndash; business acumen, years of public service and extensive public company board, business and financial
experience;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Susan Evans &ndash; over 30 years&rsquo; experience in the in vitro diagnostics industry, including development of numerous
successful diagnostic tests.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Daryl Faulkner &ndash; significant chief executive and senior executive experience in medical device and medical diagnostics
publicly traded companies, both national and global;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>John Landon &ndash; extensive executive experience in the life science industry, with particular experience with medical products
businesses, and broad executive compensation knowledge and committee experience;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>David Welch &ndash; financial and information systems expertise, particularly in publicly traded companies; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Stephen Williams &ndash; medical, scientific and clinical biomarker discovery and development experience.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Family Relationships</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">There are no family relationships among any of our directors
or executive officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Director Independence</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our Board of Directors currently consists of Ms. Schoettler,
Drs. Evans and Williams and Messrs. Lundy, Faulkner, Landon and Welch. The Company defines &ldquo;independent&rdquo; as that term
is defined in Rule 5605(a)(2) of the Nasdaq listing standards. For 2012, Ms. Schoettler and Messrs. Faulkner, Landon and Welch
qualified as independent and none of them have any material relationship with us that might interfere with his or her exercise
of independent judgment. In making the determination as to the independence of Mr. Faulkner, the Board considered the interim nature
of his service as CEO of the Company for a brief period ending in March 2010, and his independence from us in all other respects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The non-employee directors, with the exception of Ms. Schoettler,
receive cash compensation of $1,000 per month as compensation for service on the Board. Ms. Schoettler, the non-executive Chair
of the Board, receives compensation of $2,000 per month as compensation for service on the Board. The independent directors typically
receive a stock option grant upon joining the Board and additional stock option grants, generally annually, for service on the
Board. Effective October 2010, Ms. Schoettler began receiving equity awards equal to 1.5 times the amount granted to other non-employee
directors when such awards are issued. The directors are also reimbursed for all expenses incurred by them in attending board meetings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Board Committees</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Board of Directors has established three standing committees:
audit, nominating and corporate governance and compensation. Each of our audit, nominating and corporate governance and compensation
committees operates under a charter that has been approved by the Board of Directors. The Board of Directors has also adopted corporate
governance guidelines to assist our Board in the exercise of its duties and responsibilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Audit Committee: </I>We have a separately designated standing
audit committee established in accordance with Section 3(a) (58) (A) of the Exchange Act. Four of our directors serve on the Audit
Committee - David Welch (who serves as Chair of the Committee), Gail Schoettler, Daryl Faulkner and Susan A. Evans. Mr.&nbsp;Welch
has been designated as the financial expert on the Audit Committee. Each Audit Committee member meets the definition of independence
for Audit Committee membership as required by the Nasdaq listing standards. The Amended and Restated Audit Committee Charter is
available on our website at <U>www.venaxis.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Nominating and Corporate Governance Committee</I>. The Nominating
Committee consists of Daryl Faulkner (who serves as Chair of the Committee), Gail Schoettler and John Landon, each of whom meet
the Nasdaq listing standards for independence. Duties of the Nominating Committee include oversight of the process by which individuals
may be nominated to our Board of Directors. The Nominating Committee charter is available on our website at <U>www.venaxis.com</U>.
There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
The specific process for evaluating new directors, including shareholder-recommended nominees, will vary based on an assessment
of the then current needs of the Board and the Company. The Nominating Committee will determine the desired profile of a new director,
the competencies they are seeking, including experience in one or more of the following: highest personal and professional integrity,
demonstrated exceptional ability and judgment and who shall be most effective in conjunction with the other nominees to the Board,
in collectively serving the long-term interests of the shareholders. Candidates will be evaluated in light of the target criteria
chosen. The Nominating Committee does not have a formal diversity policy; in addition to the foregoing, it considers race and gender
diversity in selection of qualified candidates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Compensation Committee:</I> Our Compensation Committee is
comprised of John Landon (who serves as Chair of the Committee), David Welch, Gail Schoettler and Stephen Williams, each of whom
is an independent director. The amended and restated Compensation Committee Charter is available on our website at <U>www.venaxis.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Code of Ethics and Whistle Blower Policy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In March 2013, the Board of Directors updated and adopted a
Code of Ethics that applies to our directors, executive officers and management employees generally. The Code of Ethics is available
on our website at <U>www.venaxis.com</U>. We intend to post any material amendments to or waivers of, our Code of Ethics that apply
to our executive officers, on this website. In addition, our Whistle Blower Policy is available on our website at <U>www.venaxis.com</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Board Leadership Structure and Role in Risk Management</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Board of Directors believes that separating the positions
of Chair of the Board and Chief Executive Officer provides the best leadership structure for us at this time. Gail Schoettler serves
as the non-executive Chair of the Board. Separating these positions allows the Chief Executive Officer to focus on the day-to-day
business, while allowing the Chair to lead the Board of Directors in its fundamental role of providing advice to and independent
oversight of management. The Board of Directors also believes that this structure ensures a greater role for the independent directors
in our oversight and active participation of the independent directors in setting agendas and establishing priorities and procedures
for the work of the Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Board of Directors is actively involved in oversight of
risks that could affect us. This oversight is conducted primarily through committees of the Board of Directors, but the full Board
of Directors has retained responsibility for general oversight of risks. The Board of Directors satisfies this responsibility through
full reports by each committee chair regarding the committee&rsquo;s considerations and actions, as well as through regular reports
directly from officers responsible for management of particular risks within the Company. The Board of Directors believes that
full and open communication between management and the Board of Directors is essential for effective risk management and oversight.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Director Compensation</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Since February 1, 2008, each non-employee director receives
cash compensation of $1,000 per month. On October 7, 2010, upon becoming non-executive Chair of the Board, Gail Schoettler began
receiving cash compensation of $2,000 per month. To conserve cash, each non-employee director agreed to defer receipt of 50% of
the cash compensation for the months of February through June 2012, resulting in a total deferral of $5,000 for Gail Schoettler
and $2,500 each for the remaining directors. The deferral remains unpaid to the present. Our non-employee directors typically receive
a stock option upon joining and additional options over time, generally annually. As additional compensation for service as non-executive
chair, Ms. Schoettler receives awards equal to 1.5 times the awards made to the other non-employee directors when such awards are
made. The directors are also reimbursed for all expenses incurred by them in attending Board and committee meetings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">Name</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cash <BR>Fees <BR>($)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option <BR>Awards <BR>($) (5)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total <BR>($)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left">Gail Schoettler (1)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">24,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">101,664</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">125,664</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Daryl Faulkner (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,610</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">113,610</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">John Landon (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">44,494</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">56,494</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">David Welch (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77,115</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89,115</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>On April 2, 2012, Ms. Schoettler was granted options to purchase 2,500 shares at $4.26 per share, vesting over three years
in arrears and expiring in ten years. On December 11, 2012, Ms.&nbsp;Schoettler was granted &ldquo;engagement award&rdquo; options
to purchase 43,340 shares at $2.10 per share, vesting 100% on the one year anniversary of the grant date. As of December 31, 2012,
Ms.&nbsp;Schoettler held a total of 65,010 options to purchase shares of our common stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>On April 2, 2012, Mr.&nbsp;Faulkner was granted options to purchase 1,667 shares at $4.26 per share, vesting over three years
in arrears and expiring in ten years. On December 11, 2012, Mr.&nbsp;Faulkner was granted &ldquo;engagement award&rdquo; options
to purchase 45,004 shares at $2.10 per share, vesting 100% on the one year anniversary of the grant date. As of December 31, 2012,
Mr.&nbsp;Faulkner held a total of 67,506 options to purchase shares of our common stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>On April 2, 2012, Mr.&nbsp;Landon was granted options to purchase 1,667 shares at $4.26 per share, vesting over three years
in arrears and expiring in ten years. On December 11, 2012, Mr.&nbsp;Landon was granted &ldquo;engagement award&rdquo; options
to purchase 17,806 shares at $2.10 per share, vesting 100% on the one year anniversary of the grant date. As of December 31, 2012,
Mr.&nbsp;Landon held a total of 26,709 options to purchase shares of our common stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(4)</TD><TD>On April 2, 2012, Mr.&nbsp;Welch was granted options to purchase 1,667 shares at $4.26 per share, vesting over three years
in arrears and expiring in ten years. On December 11, 2012, Mr.&nbsp;Welch was granted &ldquo;engagement award&rdquo; options to
purchase 33,340 shares at $2.10 per share, vesting 100% on the one year anniversary of the grant date. As of December 31, 2012,
Mr.&nbsp;Welch held a total of 50,010 options to purchase shares of our common stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(5)</TD><TD>The &ldquo;Option Awards&rdquo; columns reflect the grant date fair value for all stock option awards granted to non-employee
directors under the Plan during 2012. These amounts are determined in accordance with ASC 718, without regard to any estimate of
forfeiture for service vesting. Assumptions used in the calculation of the amounts in this column are included in footnotes 1 and
6 to our audited financial statements for the fiscal year ended December 31, 2012.</TD></TR></TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Compensation Discussion and Analysis</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">This section describes our compensation program for our named
executive officers (&ldquo;Named Executive Officers&rdquo;) during the fiscal year ended December 31, 2012. The following discussion
focuses on our compensation program and compensation-related decisions for fiscal year 2012 and also addresses why we believe our
compensation program is appropriate for us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Compensation Philosophy and Objectives</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">It is our philosophy to link executive compensation to corporate
performance and to create incentives for management to enhance Company value. The following objectives have been adopted by the
Compensation Committee as guidelines for compensation decisions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide a competitive total executive compensation package that enables us to attract, motivate and retain key executives;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>integrate the compensation arrangements with our annual and long-term business objectives and strategy, and focus executives
on the fulfillment of these objectives; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>provide variable compensation opportunities that are directly linked with our financial and strategic performance.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Procedures for Determining Compensation</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our Compensation Committee has the overall responsibility for
designing and evaluating the salaries, incentive plan compensation, policies and programs for our Named Executive Officers. The
Compensation Committee relies on input from our Chief Executive Officer regarding the Named Executive Officers (other than himself),
and on an analysis of our corporate performance. With respect to the compensation for the Chief Executive Officer, the Compensation
Committee evaluates the Chief Executive Officer&rsquo;s performance and sets his compensation. With respect to our corporate performance
as a factor for compensation decisions, the Compensation Committee considers, among other aspects, our long-term and short-term
strategic goals and development goals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our Chief Executive Officer plays a significant role in the
compensation-setting process of the other Named Executive Officers and makes recommendations to the Compensation Committee concerning
performance objectives and salary and bonus levels for the other Named Executive Officers. The Compensation Committee, at least
annually, then discusses the recommendations with the Chief Executive Officer. The Compensation Committee may, in its sole discretion,
approve, in whole or in part, the recommendations of the Chief Executive Officer. The Compensation Committee makes recommendations
to the full Board of Directors for their final approval regarding the overall compensation structure for the Named Executive Officers.
In fiscal year 2012, the Compensation Committee and the Board approved the Chief Executive Officer&rsquo;s recommendations for
salary and bonus with respect to each of the other Named Executive Officers.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In determining the adjustments to the compensation of our Named
Executive Officers, we participated in the Radford Global Life Sciences Survey of compensation. Information obtained from this
survey was used in summary form for informational purposes for our compensation considerations. We do not use such information
or other information to benchmark the compensation of our Named Executive Officers. Our Compensation Committee also relied on their
experience with other public companies, and the Radford compensation data and those experiences informed and guided our compensation
decisions for fiscal 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As a smaller reporting company, we were not required to seek
advisory shareholder approval of the compensation of our Named Executive Officers at the annual meeting of shareholders held in
2012. Shareholders are being asked to approve, on an advisory basis, the compensation of our Named Executive Officers at the 2013
annual meeting of shareholders scheduled to be held on June 11, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Elements of Executive Compensation</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The compensation of our Named Executive Officers consists primarily
of four major components:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>base salary;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>annual incentive awards;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>long-term equity awards; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>other benefits.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Base Salary</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The base salary of each of our Named Executive Officers is determined
based on an evaluation of the responsibilities of that particular position, each Named Executive Officer&rsquo;s historical salary
earned in similar management positions with us or other companies, and the Radford compensation data described above. A significant
portion of each Named Executive Officer&rsquo;s total compensation is in the form of base salary. The salary component is designed
to provide the Named Executive Officers with consistent income and to attract and retain talented and experienced executives capable
of managing our operations and strategic growth. Annually, the performance of each Named Executive Officer is reviewed by the Compensation
Committee using information and evaluations provided by the Chief Executive Officer with respect to the other Named Executive Officers
and its own assessment of the Chief Executive Officer, taking into account our operating and financial results for the year, a
subjective assessment of the contribution of each Named Executive Officer to such results, the achievement of our strategic growth
and any changes in our Named Executive Officers&rsquo; roles and responsibilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Annual Incentive Plan</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Named Executive Officers participated in our annual incentive
plan for senior management (the &ldquo;Incentive Plan&rdquo;) for 2012. Under the Incentive Plan, management develops annual corporate
goals and milestone objectives that are then approved by the Compensation Committee and the Board. The Incentive Plan is designed
to recognize and reward our employees, including the Named Executive Officers, for contributing towards the achievement of our
annual corporate business plan. These annual incentive awards are designed to reward near-term operating performance and the achievement
of milestones critical to our success in both the near and the long-term. The Compensation Committee believes the Incentive Plan
serves as a valuable short-term incentive program for providing cash bonus opportunities for our employees upon achievement of
targeted operating results. The 2012 Incentive Plan was 45% weighted on goals related to advancement of development activities
surrounding our appendicitis product, with the balance weighted between fundraising, animal health advances and additional public
company considerations. Specifically, the Incentive Plan goals were:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Advance on <I>APPY1</I> developments including submission of a Pre-IDE package to the FDA, establish a path to proceed to a
clinical trial based upon FDA feedback, commence enrollment in a clinical trial and completion of CE Marking (45% of total);</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Achieve specific fundraising, investor relations and public company goals (45% of total); and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.7in"></TD><TD STYLE="width: 0.3in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Complete a specific strategic animal health transaction (10% of total).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Each of the Incentive Plan goals categories included a potential
stretch goal for successful achievement above the targeted expectations established in the goals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">For fiscal 2012 based upon a review of the goals and achievements,
the Compensation Committee and the Board determined that an aggregate achievement level of 92.5% was earned on the 2012 Incentive
Plan goals. This achievement level included a stretch goal achievement on the fund-raising goal, achievement of a substantial portion
of the development goals and the successful execution of an exclusive license agreement with respect to the Company&rsquo;s animal
health assets. The bonus awards were paid in the first quarter of 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Long-Term Equity Awards</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Compensation Committee believes that it is essential to
align the interests of the Named Executive Officers with the interests of our shareholders, and believes the best way to accomplish
this alignment is through awards of long-term, equity-based compensation. The Compensation Committee has also identified the need
to recruit and retain experienced, high performing executives, and equity-based awards assist in such recruitment and retention.
Such awards are made under the Amended and Restated 2002 Stock Incentive Plan, as amended (the &ldquo;Plan&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have granted stock options as incentive stock options in
accordance with Section 422 of the Code, subject to the volume limitations contained in the Code, as well as non-qualified stock
options. Generally, for stock options that do not qualify as incentive stock options, we are entitled to a tax deduction in the
year in which the stock options are exercised equal to the spread between the exercise price and the fair market value, at the
time of exercise, of the stock for which the stock option was exercised. The holders of the non-qualified stock options are generally
taxed on this same amount in the year of exercise. For stock options that qualify as incentive stock options, we do not receive
a tax deduction, and the holder of the stock option may receive more favorable tax treatment than he or she would for a non-qualified
stock option. Historically, we have primarily granted incentive stock options to provide these potential tax benefits to our executives
and because of the limited expected benefits to us of the potential tax deductions as a result of our historical net losses.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Board of Directors made annual stock option awards to the
Named Executive Officers in April 2012. The Named Executive Officer annual awards for stock options, other than the Chief Executive
Officer, are generally awarded at the same level for each Named Executive Officer and have been based upon the same annual award
levels as used for the grants to non-employee directors. The stock options generally have a term of ten years and are subject to
time-based vesting over three years. In addition, for certain Named Executive Officers, performance-based vesting tied to achievement
of specific corporate goals is used to provide additional incentives to tie compensation more closely to our defined needs.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In July 2012, the Compensation Committee engaged Mercer compensation
consultants to assist the Compensation Committee in its evaluation of our equity-based compensation. Due to the prolonged product
development and approval timeline that we have encountered, we had been unable to achieve regulatory approval for our principal
product, <I>APPY1</I>, and had experienced significant declines in its stock price over the past few years. In order to maintain
compliance with the applicable Nasdaq listing standards, we had effected two shareholder-approved reverse stock split transactions,
one on July 28, 2011, and the second on June 20, 2012, in conjunction with a common stock financing transaction. The Compensation
Committee and the Board of Directors determined that the stock price decline and the impact of the reverse split transactions had
negatively affected the incentive and compensatory nature of stock options previously granted to executive officers, other employees
and non-employee directors &ndash; over 95% of then currently outstanding stock option awards were significantly &ldquo;out-of-the
money&rdquo; and did not provide the desired incentive and compensation objectives. The Compensation Committee and the Board of
Directors approved an amendment to the Plan to increase the number of shares available for awards under the Plan, and, following
shareholder approval of such share increase, approved an &ldquo;engagement awards&rdquo; retention program to provide additional
equity awards to executive officers, non-employee directors and other employees. The Compensation Committee met with Mercer representatives
and sought advice from them, in their capacity as an independent compensation consultant, in developing this engagement award program.
Mercer provided the Committee with its support of the proposed plan. Shareholder approval of the share increase was obtained at
a special meeting held in December 2012, and the engagement awards were issued after receipt of such shareholder approval. The
engagement awards made to the Named Executive Officers are included in the &ldquo;<I>Outstanding Equity Awards at Fiscal Year End</I>&rdquo;
table.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have adopted a Change in Control policy for the Plan. A &ldquo;Change
in Control&rdquo; is defined under the Plan as (i) the acquisition, directly or indirectly, by any person or group (within the
meaning of Section 13(d)(3) of the Exchange Act of the beneficial ownership of more than fifty percent of our outstanding securities,
(ii) a merger or consolidation in which we are not the surviving entity, (iii) the sale or transfer or other disposition of all
or substantially all of our assets, (iv)&nbsp;our complete liquidation or dissolution or (v)&nbsp;any reverse merger in which we
are the surviving entity but in which securities possessing more than fifty percent of the total combined voting power of our outstanding
securities are transferred. Under the adopted policy, in the event of a Change in Control, all outstanding unvested stock options
and rights granted under the Plan and held by Directors and Named Executive Officers will fully vest. The Board believes that this
acceleration of vesting of outstanding awards provides the executives at risk for job loss in any Change of Control with certainty
as to the impact of the Change in Control on such long-term compensation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Compensation Committee periodically reviews long-term incentives
to assure that our executive officers and other key employees are appropriately motivated and rewarded in a way that is aligned
with our long-term financial results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Agreements with Named Executive Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have entered into employment agreements with, and provide
post-employment benefits to, our Named Executive Officers as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Chief Executive Officer </B><I>-<B> </B></I>On March 24,
2010, we entered into an employment agreement with Mr.&nbsp;Lundy which provides that he shall serve at the pleasure of the Board
of Directors unless the agreement is terminated by either party as provided in the agreement. The agreement provides in the event
that Mr.&nbsp;Lundy&rsquo;s employment is terminated by us for other than cause, or if such employment is terminated by the executive
in the event of a change in control, severance payments based upon Mr.&nbsp;Lundy&rsquo;s salary will be made for twelve months.
In the event of death or disability, severance payments based upon Mr.&nbsp;Lundy&rsquo;s salary will be made for three months.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Chief Financial Officer </B>- On February 2, 2009, we entered
into an employment agreement with Mr.&nbsp;McGonegal for a one-year term which automatically renews each anniversary thereafter
(unless terminated by either party as provided in the agreement). The agreement provides in the event that Mr.&nbsp;McGonegal&rsquo;s
employment is terminated by us for other than cause, or if such employment is terminated by the executive in the event of a change
in control, severance payments based upon Mr.&nbsp;McGonegal&rsquo;s salary will be made for six months. In the event of death
or disability, severance payments based upon Mr.&nbsp;McGonegal&rsquo;s salary will be made for six months.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Chief Commercial Officer</B> - On May 23, 2012, we entered
into an employment agreement with Mr.&nbsp;Hurd for a one-year term which automatically renews each anniversary thereafter (unless
terminated by either party as provided in the agreement). The agreement provides in the event that Mr.&nbsp;Hurd&rsquo;s employment
is terminated by us for other than cause, or if such employment is terminated by the executive in the event of a change in control,
severance payments based upon Mr.&nbsp;Hurd&rsquo;s salary will be made for six months. In the event of death or disability, severance
payments based upon Mr.&nbsp;Hurd&rsquo;s salary will be made for six months.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Summary Compensation Table</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">This table provides disclosure, for fiscal
years 2012 and 2011 for the Named Executive Officers, who are (1) any individual serving in the office of Chief Executive Officer
(CEO) during any part of 2012 and (2) our two most highly compensated officers, other than the CEO, who were serving in such capacity
on December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Named Executive Officer <BR> and Principal Position</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Year</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Salary <BR>
($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option<BR> Awards<BR> (4)($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Non-Equity<BR> Incentive Plan<BR> Compensation<BR> (5)($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">All Other<BR> Compensation<BR> ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 28%; text-align: left">Stephen T. Lundy, Chief</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: center">2012</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">283,910</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">216,875</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">118,220</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">32,681</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">651,666</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Executive Officer and</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">2011</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">275,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">268,308</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,209</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">577,517</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>President (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Jeffrey G. McGonegal, Chief</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">2012</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">225,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,130</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">72,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">21,131</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">434,061</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Financial Officer (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">2011</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">225,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24,390</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,758</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">270,148</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Donald R. Hurd, Chief Commercial Officer (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">2012</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">134,167</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">144,841</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">55,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,955</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">348,763</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Stephen T. Lundy joined us in 2010 as Chief Executive Officer and President with an annual salary of $275,000. Effective October
29, 2012, Mr.&nbsp;Lundy&rsquo;s annual salary was increased to $325,000. Mr.&nbsp;Lundy also serves as a director of the Company;
he does not receive additional compensation for serving in such role. Amounts included in &ldquo;All Other Compensation&rdquo;
include: temporary living and travel accommodations he was provided at a total cost of $19,674 and $18,914 in 2012 and 2011, respectively,
and coverage under our group medical plan at a total cost of $13,007 and $15,296 in 2012 and 2011, respectively.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>The amounts included in &ldquo;All Other Compensation&rdquo; include the amount paid on his behalf for group medical benefits.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Donald Hurd joined us in May 2012 with an annual base salary of $230,000. The amounts included in &ldquo;All Other Compensation&rdquo;
include: consulting fees of $7,688 paid to Mr. Hurd prior to his employment, and temporary living and travel accommodations he
was provided at a total cost of $6,268.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(4)</TD><TD>The &ldquo;Option Awards&rdquo; columns reflect the grant date fair value for all stock option awards granted under the Plan
during 2011 and 2012. These amounts are determined in accordance with FASB Accounting Standards Codification 718 (ASC 718), without
regard to any estimate of forfeiture for service vesting. Assumptions used in the calculation of the amounts in these columns for
2011 and 2012 are included in footnotes 1 and 6 to our audited financial statements for the fiscal year ended December 31, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(5)</TD><TD>The &ldquo;Non-Equity Incentive Plan Compensation&rdquo; column reflects the annual cash bonuses earned under the Incentive
Plan. The bonus amounts listed were earned for the fiscal year reported, but paid in the subsequent year.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Outstanding Equity Awards at Fiscal Year End</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="17" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option Awards</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Named Executive Officer</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of<BR> Securities<BR> Underlying<BR> Unexercised<BR> Options<BR> Exercisable<BR> (#)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Number of</B><BR> <B>Securities</B><BR> <B>Underlying</B><BR> <B>Unexercised</B><BR> <B>Options</B><BR> <B>Unexercisable</B><BR> <B>(#)</B></P></TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Equity Incentive<BR> Plan Awards:<BR> Number of<BR> Securities<BR> Underlying<BR> Unexercised<BR> Unearned<BR> Options<BR> (#)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option<BR> Exercise<BR> Price ($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Option<BR> Expiration<BR> Date</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 24%; text-align: left">Stephen T. Lundy (1)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">5,259</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">1,798</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">68.40</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 15%; text-align: center">3-24-2020</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">691</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,382</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-5-2021</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,731</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,464</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">7-8-2021</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,332</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,168</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.96</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">4-30-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">99,336</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">12-11-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Jeffrey G. McGonegal (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">44.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">6-17-2013</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36.30</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-19-2014</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">8-24-2014</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">3-24-2015</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">88.80</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-24-2017</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">198.90</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-17-2018</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39.90</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-27-2019</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">557</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">66.00</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-19-2020</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">555</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,112</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">1-5-2021</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,443</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,224</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.96</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">4-30-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">52,676</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">12-11-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Donald R. Hurd (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.42</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">5-23-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.05</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">9-19-2022</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.10</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">12-11-2022</TD></TR>
</TABLE>



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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Includes options to purchase: 7,057 shares at $68.40 per share granted on March 24, 2010; 2,073 shares at $17.70 per share
granted on January 5, 2011; 11,195 shares at $20.40 per share granted on July 8, 2011; 12,500 shares at $3.96 per share granted
on April 30, 2012; and 99,336 shares at $2.10 per share granted on December 11, 2012. All options are scheduled to vest 33% on
the first and second anniversaries and 34% on the third anniversary of the grant date with the exception of 1,667 shares underlying
the March 24, 2010 options, which vested early based upon their terms upon the completion of a May 2010 capital raising transaction,
the options granted on April 30, 2012, which vested 50% after six months and the remaining 50% equally over the following six months
and the options granted December 11, 2012 vest 100% on the one year anniversary of the grant date.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Includes options to purchase: 2,000 shares at $44.10 per share granted on June 17, 2003; 4,667 shares at $36.30 per share granted
January 19, 2004; 3,334 shares at $22.50 per share granted August 24, 2004; 1,667 shares at $24.00 per share granted March 24,
2005; 1,667 shares at $88.80 per share granted January 24, 2007; 1,334 shares at $198.90 per share granted January 17, 2008; 1,667
shares at $39.90 per share granted on January 27, 2009; 1,667 shares at $ 66.00 per share granted on January 19, 2010; 1,667 shares
at $17.70 per share granted on January 5, 2011; 6,667 shares at $3.96 per share granted on April 30, 2012; and 52,676 shares at
$2.10 per share granted on December 11, 2012. All options are scheduled to vest 33% on the first and second anniversaries and 34%
on the third anniversary of the grant date with the exception of the stock options granted March 24, 2005, which were fully vested
at grant date, the options granted on April 30, 2012, which vested 50% after six months and the remaining 50% equally over the
following six months and the options granted December 11, 2012 vest 100% on the one year anniversary of the grant date.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Includes options to purchase: 20,000 shares at $3.42 per share granted on May 23, 2012; 10,000 shares at $2.05 per share granted
on September 19, 2012; and 40,000 shares at $2.10 per share granted on December 11, 2012. The options granted May 23, 2012 vest
33% on the first and second anniversaries and 34% on the third anniversary of the grant date, the options granted September 29,
2012 vest 50% after six months and the remaining 50% equally over the following six months, and the options granted December 11,
2012 vest 100% on the one year anniversary of the grant date.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Options Exercised and Stock Vested</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">None of the Named Executive Officers exercised stock options
during the year ended December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Post-Employment Benefits</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following table discloses the post-employment termination
benefits that would have been received by the Named Executive Officers if a termination event had occurred on December 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Named Executive Officer</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Benefit</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Termination <BR>without<BR> Cause <BR>($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Death or <BR>Disability <BR>($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change In<BR> Control <BR>(Single<BR> Trigger) <BR>($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change In<BR> Control <BR>(Double<BR> Trigger) <BR>($)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 35%; text-align: left">Stephen T. Lundy</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%">Severance</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">325,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">81,250</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">325,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD>Options (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">Total</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">325,000</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">81,250</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">325,000</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Jeffrey G. McGonegal</TD><TD>&nbsp;</TD>
    <TD>Severance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD>Options (1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">Total</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">112,500</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">112,500</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">112,500</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Donald R. Hurd</TD><TD>&nbsp;</TD>
    <TD>Severance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD>Options (1)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">-</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">-</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,100</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold">Total</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">115,000</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">115,000</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">115,000</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0"></P>

<!-- Field: Rule-Page --><DIV ALIGN="LEFT" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Based on a closing trading price of our common stock of $2.56 on December 31, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>EQUITY COMPENSATION PLAN INFORMATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We currently have one equity compensation plan. The 2002 Stock
Incentive Plan, as amended (the Plan) was approved by the Board of Directors and adopted by the shareholders in 2002 and is used
for plan-based awards for officers, other employees, consultants, advisors and non-employee directors. The Plan was amended and
restated on June 1, 2007 and further amended on June 9, 2008, November 20, 2009, November 22, 2010, July 8, 2011, May 22, 2012
and December 11, 2012, primarily to increase the number of shares available for awards under the Plan, with the most recent increase
to 1,487,205 shares, as approved by the shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following table gives information about our common stock
that may be issued upon the exercise of options and rights under the Plan as of December 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Plan Category</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of<BR> securities to be<BR> issued upon<BR> exercise of<BR> outstanding<BR> options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted average<BR> exercise price of<BR> outstanding<BR> options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of securities<BR> remaining available<BR> for future issuance</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; color: rgb(70,83,97); text-align: left">Equity compensation plans approved by security holders</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">707,940</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 12%; color: rgb(70,83,97); text-align: right">13.98</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 15%; color: rgb(70,83,97); text-align: right">779,265</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Equity compensation plans not approved by security holders</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">Total</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">707,940</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">13.98</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">779,265</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On April 17, 2013, the Board of Directors adopted an amendment
increasing the total shares reserved under the Plan by 425,000 from 1,487,205 to 1,912,205, with such amendment being subject to
shareholder approval.&nbsp; The amendment is being submitted to shareholders for approval at the annual meeting of shareholders
on June 11, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Other Benefits</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Perquisites and other benefits</I> &ndash; We offer our Named
Executive Officers modest perquisites and other personal benefits that we believe are reasonable and in our best interest and generally
in line with benefits we offer to all of our employees. See &ldquo;Executive Compensation&mdash; Summary compensation table.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Severance benefits</I> &ndash; We have entered into employment
agreements with each Named Executive Officer. These agreements provide our Named Executive Officers with certain severance benefits
in the event of involuntary termination. See &ldquo;Executive Compensation &mdash; Employment agreements and post-employment benefits.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Pension benefits</I> &ndash; We have no defined benefit plans,
supplemental executive retirement plans or actuarial plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Nonqualified Defined Contribution and Other Deferred Compensation
Plans</I> &ndash; We do not have a defined contribution plan and has not contributed to a deferred compensation plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>CERTAIN RELATIONSHIPS AND RELATED PERSON
TRANSACTIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Amended and Restated Audit Committee Charter directs our
Audit Committee to conduct an appropriate review of all proposed related person transactions. Our executive officers, directors
and principal shareholders, including their immediate family members, are not permitted to enter into a related person transaction
with us without the consent of our Audit Committee.</P>



<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Except for employment agreements previously entered into between
us and certain of our executive officers (as described under &ldquo;Agreements with Named Executive Officers&rdquo;), since January
1, 2012, none of our directors or executive officers, nor any person who owned of record or was known to own beneficially more
than 5% of our outstanding shares of common stock, nor any associate or affiliate of such persons or companies, has any material
interest, direct or indirect, in any transaction, or in any proposed transaction, which has materially affected or will affect
us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The number of shares of our common stock outstanding at the
close of business on April 1, 2013 was 9,954,380. The following table sets forth the beneficial ownership of our common stock as
of April 1, 2013 by each of our directors and each executive officer then serving, by all directors and executive officers as a
group, and by each person who owned of record, or was known to own beneficially, more than 5% of the outstanding shares of common
stock. Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares
beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject
to options currently exercisable or exercisable within 60 days after April 1, 2013 are deemed outstanding, but are not deemed outstanding
for the purpose of computing the percentage ownership of any other person. To the knowledge of our directors and executive officers,
as of April 1, 2013, there are no persons and/or companies who or which beneficially own, directly or indirectly, shares carrying
more than 5% of the voting rights attached to our outstanding shares, other than as set forth below. Unless otherwise indicated,
the address of each individual named below is the address of the Company, 1585 South Perry Street, Castle Rock, CO 80104.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Beneficial Ownership Table</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">Name and Address</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Percent</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Stephen T. Lundy (1)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">28,670</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</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">Gail S. Schoettler (2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,169</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Susan A. Evans (3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Daryl J. Faulkner (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,168</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">John H. Landon (5)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,235</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">David E. Welch (6)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,002</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stephen A. Williams</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Donald R. Hurd (7)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Jeffrey G. McGonegal (8)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39,404</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">All Officers and Directors as a Group (9 persons) (9)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,314</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.5</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Sophrosyne Capital, LLC</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">884,432</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.9</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">156 E. 36th Street</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">2 Sniffen Court</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">New York, NY&nbsp; 10016 (10)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Perkins Capital Management, Inc.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">717,813</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.2</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">730 Lake St. E.</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Wayzata, MN 55391 (11)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;&nbsp;</P>

<!-- Field: Rule-Page --><DIV ALIGN="LEFT" STYLE="margin-top: 0; margin-bottom: 0"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">* Holds less than 1%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Includes 4,000 shares directly owned. Also includes options to purchase 7,057 shares at $68.40 per share, options to purchase
1,382 shares at $17.70 per share, options to purchase 3,731 shares at $20.40 per share and options to purchase 12,500 shares at
$3.96 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Includes 3,000 shares directly owned. Also includes options to purchase 3,334 shares at $44.10 per share, options to purchase
1,667 shares at $25.50 per share, options to purchase 3,334 shares at $28.80 per share, options to purchase 1,667 shares at $48.00
per share, options to purchase 1,667 shares at $88.80 per share, options to purchase 1,667 shares at $198.90 per share, options
to purchase 1,667 shares at $39.90 per share, options to purchase 1,667 shares at $66.00 per share, options to purchase 1,666 shares
at $17.70 per share, options to purchase 833 shares at $4.26 per share and options to purchase 20,000 shares at $2.04 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Includes options to purchase 12,000 shares at $2.56 per share and options to purchase 1,000 shares at $2.04 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>


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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(4)</TD><TD>Includes 334 common shares held by the Daryl J. and Terri L. Faulkner Family Trust. Also includes options to purchase 4,167
shares at $66.00 per share, options to purchase 1,111 shares at $17.70 per shares, options to purchase 555 shares at $4.26 per
shares, and options to purchase 13,000 shares at $2.04 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: #465361">(5)</FONT></TD><TD>Includes options to purchase 2,235 shares at $177.90 per share, options to purchase 1,667 shares at $39.90 per share, options
to purchase 1,667 shares at $66.00 per share, options to purchase 1,111 shares at $17.70 per shares, options to purchase 555 shares
at $4.26 per share, and options to purchase 13,000 shares at $2.04 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(6)</TD><TD>Includes options to purchase 3,334 shares at $22.80 per share, options to purchase 1,667 shares at $24.00 per share, options
to purchase 1,667 shares at $48.00 per share, options to purchase 1,667 shares at $88.80 per share, options to purchase 1,667 shares
at $198.90 per share, options to purchase 1,667 shares at $39.90 per share, options to purchase 1,667 shares at $66.00 per share,
options to purchase 1,111 shares at $17.70 per shares, options to purchase 555 shares at $4.26 per share, and options to purchase
13,000 shares at $2.04 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(7)</TD><TD>Includes 15,000 shares directly owned. Also includes options to purchase 20,000 shares at $3.42 per share and options to purchase
6,666 shares at $2.05 per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

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<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(8)</TD><TD>Includes 13,072 shares held directly and 50 shares owned by his daughter; however Mr.&nbsp;McGonegal disclaims beneficial ownership
of the shares owned by his daughter. Also includes 500 shares held in Mr.&nbsp;McGonegal&rsquo;s IRA account. Also includes options
to purchase 2,000 shares at $44.10 per share, options to 4,668 shares at $36.30 per share, options to purchase 3,334 shares at
$22.50 per share, options to purchase 1,667 shares at $24.00 per share, options to purchase 1,667 shares at $88.80 per share, options
to purchase 1,334 shares at $198.90 per share, options to purchase 1,667 shares at $39.90 per share, options to purchase 1,667
shares at $66.00 per share, options to purchase 1,111 shares at $17.70 per share, and options to purchase 6,667 shares at $3.96
per share.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(9)</TD><TD>Includes the information in footnotes (1) through (8).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(10)</TD><TD>Information is as of November 26, 2012, and is based upon holdings as reported on Schedule 13G filed by the shareholder on
November 27, 2012. Sophrosyne Capital, LLC, has voting power and dispositive power over 884,432 shares of our Common Stock.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in">(11)</TD><TD>Information is based upon holdings as of December 31, 2012 as reported on Schedule 13G/A filed on February 1, 2013. Perkins
Capital Management, Inc., an investment advisor, has voting power over 626,406 shares and dispositive power over 717,813 shares
of our common stock.</TD></TR></TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>DESCRIPTION OF SECURITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our authorized capital stock consists of 30,000,000 shares of
common stock, no par value per share. On April 17, 2013, the Board of Directors approved an amendment to our Articles of Incorporation,
as amended, to increase the total number of shares of common stock we are authorized to issue from 30,000,000 to 60,000,000, with
such amendment being subject to shareholder approval.&nbsp; The amendment is being submitted to shareholders for approval at the
annual meeting of shareholders on June 11, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As of May 6, 2013, we had 9,954,380 outstanding shares of common
stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As of March 31, 2013, we had 1,226,899 shares of common stock
issuable upon the exercise of outstanding options granted under our stock option plans at a weighted average exercise price of
$8.94 per share, 597,004 shares of common stock issuable upon exercise of options granted outside of our stock option plans and
warrants at a weighted average exercise price of $4.87 per share, and 260,306 shares of common stock available for future issuance
under our stock option plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of shareholders, except that in the election of directors each shareholder shall have as
many votes for each share held by him, her or it as there are directors to be elected and for whose election the shareholder has
a right to vote. Cumulative voting is not permitted. Generally, all matters to be voted on by shareholders must be approved by
a majority, or, in the case of the election of directors, by a plurality, of the votes cast at a meeting at which a quorum is present.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Holders of outstanding shares of our common stock are entitled
to those dividends declared by the Board of Directors out of legally available funds, and, in the event of our liquidation, dissolution
or winding up of our affairs, holders are entitled to receive ratably our net assets available to the shareholders. Holders of
our outstanding common stock have no preemptive, conversion or redemption rights. All of the issued and outstanding shares of our
common stock are, and all unissued shares of our common stock, when offered and sold will be, duly authorized, validly issued,
fully paid and nonassessable. To the extent that additional shares of our common stock may be issued in the future, the relative
interests of the then existing shareholders may be diluted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our authorized but unissued shares of common stock are available
for future issuances without shareholder approval and could be utilized for a variety of corporate purposes, including future offerings
to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved
common stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Transfer Agent</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The transfer agent for our common stock is Corporate Stock Transfer,
Inc., Denver, Colorado.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Listing</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The shares of our common stock are currently listed on the NASDAQ
Capital Market under the symbol &ldquo;APPY.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0in"><B>MATERIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>General</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following is a discussion of the material U.S. federal income
tax consequences of the acquisition, ownership, and disposition of our common stock by a non-U.S. holder, as defined below, that
acquires our common stock pursuant to this offering. This discussion assumes that a non-U.S. holder will hold our common stock
issued pursuant to this offering as a capital asset within the meaning of Section&nbsp;1221 of the Code. This discussion does not
address all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor&rsquo;s
individual circumstances. In addition, this discussion does not address (i)&nbsp;U.S. federal non-income tax laws, such as gift
or estate tax laws, (ii)&nbsp;state, local or non-U.S. tax consequences, (iii)&nbsp;the special tax rules that may apply to certain
investors, including, without limitation, banks, insurance companies, financial institutions, controlled foreign corporations,
passive foreign investment companies, broker-dealers, grantor trusts, personal holding companies, taxpayers who have elected mark-to-market
accounting, tax-exempt entities, regulated investment companies, real estate investment trusts, a partnership or other entity or
arrangement classified as a partnership for United States federal income tax purposes or other pass-through entities, or an investor
in such entities or arrangements, or U.S. expatriates or former long-term residents of the United States, (iv)&nbsp;the special
tax rules that may apply to an investor that acquires, holds, or disposes of our common stock as part of a straddle, hedge, constructive
sale, conversion or other integrated transaction, or (v)&nbsp;the impact, if any, of the alternative minimum tax.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">This discussion is based on current provisions of the Code,
applicable U.S. Treasury Regulations promulgated thereunder, judicial opinions, and published rulings of the Internal Revenue Service,
or the IRS, all as in effect on the date of this prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with
respect to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary
to the tax consequences discussed below or that any position taken by the IRS would not be sustained.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As used in this discussion, the term &ldquo;U.S. person&rdquo;
means a person that is, for U.S. federal income tax purposes, (i)&nbsp;a citizen or individual resident of the United States, (ii)&nbsp;a
corporation (or other entity taxed as a corporation) created or organized (or treated as created or organized) in the United States
or under the laws of the United States or any state thereof or the District of Columbia, (iii)&nbsp;an estate the income of which
is subject to U.S. federal income taxation regardless of its source, or (iv)&nbsp;a trust if (A)&nbsp;a court within the United
States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust, or (B)&nbsp;it has in effect a valid election under applicable U.S. Treasury
Regulations to be treated as a U.S. person. As used in this discussion, the term &ldquo;non-U.S. holder&rdquo; means a beneficial
owner of our common stock (other than a partnership or other entity treated as a partnership or as a disregarded entity for U.S.
federal income tax purposes) that is not a U.S. person.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The tax treatment of a partnership and each partner thereof
will generally depend upon the status and activities of the partnership and such partner. A holder that is treated as a partnership
for U.S. federal income tax purposes or a partner in such partnership should consult its own tax advisor regarding the U.S. federal
income tax consequences applicable to it and its partners of the acquisition, ownership and disposition of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">THIS DISCUSSION IS ONLY A SUMMARY OF MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK. IT IS NOT TAX ADVICE. EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP
AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL
AS U.S. FEDERAL ESTATE AND GIFT TAX LAWS, AND ANY APPLICABLE TAX TREATY.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Income Tax Consequences of an Investment in Common Stock
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Distributions on Common Stock </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As discussed under &ldquo;Dividend Policy,&rdquo; we do not
anticipate paying dividends. If we pay cash or distribute property to holders of shares of common stock, such distributions generally
will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and
profits will constitute a return of capital that will be applied against and reduce (but not below zero) the holder&rsquo;s adjusted
tax basis in our common stock. Any remaining excess will be treated as gain from the sale or exchange of the common stock and will
be treated as described under &ldquo;&mdash;Gain or Loss on Sale, Exchange or Other Taxable Disposition of Common Stock&rdquo;
below.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Dividends paid to a non-U.S. holder that are not effectively
connected with the non-U.S. holder&rsquo;s conduct of a trade or business in the United States generally will be subject to withholding
of U.S. federal income tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. A non-U.S.
holder that wishes to claim the benefit of an applicable tax treaty withholding rate generally will be required to (i)&nbsp;complete
IRS Form W-8BEN (or other applicable form) and certify under penalties of perjury that such holder is not a U.S. person and is
eligible for the benefits of the applicable tax treaty or (ii)&nbsp;if our common stock is held through certain foreign intermediaries,
satisfy the relevant certification requirements of applicable U.S. Treasury Regulations. These forms may need to be periodically
updated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A non-U.S. holder eligible for a reduced rate of withholding
of U.S. federal income tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing
an appropriate claim for refund with the IRS. Non-U.S. holders should consult their own tax advisors regarding their entitlement
to benefits under an applicable income tax treaty and the manner of claiming the benefits of such treaty (including, without limitation,
the need to obtain a U.S. taxpayer identification number).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Dividends that are effectively connected with a non-U.S. holder&rsquo;s
conduct of a trade or business in the United States, and, if required by an applicable income tax treaty, attributable to a permanent
establishment or fixed base maintained by the non-U.S. holder in the United States, are subject to U.S. federal income tax on a
net income basis at the U.S. federal income tax rates generally applicable to a U.S. holder and are not subject to withholding
of U.S. federal income tax, provided that the non-U.S. holder establishes an exemption from such withholding by complying with
certain certification and disclosure requirements. Any such effectively connected dividends (and, if required, dividends attributable
to a U.S. permanent establishment or fixed base) received by a non-U.S. holder that is treated as a foreign corporation for U.S.
federal income tax purposes may be subject to an additional branch profits tax at a 30% rate, or such lower rate as may be specified
by an applicable income tax treaty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><I>Gain or Loss on Sale, Exchange or
Other Taxable Disposition of Common Stock </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Any gain recognized by a non-U.S. holder on a sale or other
taxable disposition of our common stock generally will not be subject to U.S. federal income tax, unless:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(i)</TD><TD>the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by
an applicable income tax treaty, is attributable to a U.S. permanent establishment or fixed base of the non-U.S. holder),</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(ii)</TD><TD>the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition,
and certain other conditions are met, or</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(iii)</TD><TD>we are or have been a United States real property holding corporation, or a USRPHC, for U.S. federal income tax purposes at
any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held
the common stock, and, in the case where the shares of our common stock are regularly traded on an established securities market,
the non-U.S. holder holds or held (at any time during the shorter of the five-year period ending on the date of disposition or
the non-U.S. holder&rsquo;s holding period) more than 5% of our common stock. A corporation generally is a USRPHC if the fair market
value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business. We believe that we currently are a USRPHC, and we
expect to remain a USRPHC.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Any gain recognized by a non-U.S. holder that is described in
clause (i)&nbsp;or (iii)&nbsp;of the preceding paragraph generally will be subject to tax at the U.S. federal income tax rates
generally applicable to a U.S. person and be required to file a U.S. tax return. Such non-U.S. holders are urged to consult their
tax advisors regarding the possible application of these rules. Any gain of a corporate non-U.S. holder that is described in clause
(i)&nbsp;above may also be subject to an additional branch profits tax at a 30% rate, or such lower rate as may be specified by
an applicable income tax treaty. An individual non-U.S. holder that is described in clause (ii)&nbsp;of such paragraph generally
will be subject to a flat 30% tax (or a lower applicable tax treaty rate) on the U.S. source capital gain derived from the disposition,
which may be offset by U.S. source capital losses during the taxable year of the disposition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Information Reporting and Backup Withholding </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We generally must report annually to the IRS and to each non-U.S.
holder of our common stock the amount of dividends paid to such holder on our common stock and the tax, if any, withheld with respect
to those dividends. Copies of the information returns reporting those dividends and withholding may also be made available to the
tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty
or agreement. Information reporting also is generally required with respect to the proceeds from sales and other dispositions of
our common stock to or through the U.S. office (and in certain cases, the foreign office) of a broker.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under some circumstances, U.S. Treasury Regulations require
backup withholding of U.S. federal income tax, currently at a rate of 28%, on reportable payments with respect to our common stock.
A non-U.S. holder generally may eliminate the requirement for information reporting (other than in respect to dividends, as described
above) and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed
applicable IRS Form W-8 or by otherwise establishing an exemption. Notwithstanding the foregoing, backup withholding and information
reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that a holder is a U.S. person.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Backup withholding is not a tax. Rather, the amount of any backup
withholding will be allowed as a credit against a non-U.S. holder&rsquo;s U.S. federal income tax liability, if any, and may entitle
such non-U.S. holder to a refund, provided that certain required information is timely furnished to the IRS. Non-U.S. holders should
consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for obtaining
an exemption from backup withholding in their particular circumstances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>UNDERWRITING</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We are offering the shares of our common stock described in
this prospectus in an underwritten offering in which Piper Jaffray &amp; Co., or the underwriter, is acting as the sole underwriter.
Subject to the terms of the underwriting agreement, the underwriter has agreed to purchase all of the shares of common stock being
offered pursuant to this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The underwriter is committed to purchase and pay for all of
the shares if any are purchased, other than those shares covered by the over-allotment option described below. The underwriter
proposes to offer the common stock directly to the public at the price set forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. After
this offering, the underwriter may change the offering price and other selling terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have granted the underwriter an option to buy up to an additional
shares of our common stock to cover over-allotments. The underwriter may exercise this option at any time and from time to time
during the 30-day period from the date of this prospectus. If any additional shares of common stock are purchased, the underwriter
will offer the additional shares on the same terms as those on which the shares are being offered.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The underwriting discount is equal to the public offering price
per share of common stock less the amount paid by the underwriter to us per share of common stock. The following table shows the
per share and total underwriting discount to be paid to the underwriter in this offering, assuming both no exercise and full exercise
of the over-allotment option.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Per&nbsp;Share</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total&nbsp;with<BR> No&nbsp;Exercise</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total&nbsp;With<BR> Exercise</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 49%; text-align: left; text-indent: -12pt; padding-left: 12pt">Paid by us</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We estimate expenses payable by us in connection with this offering
of common stock, other than the underwriting discounts referred to above, will be approximately $ . This estimate includes $150,000
of fees and expenses of the underwriter. The underwriter has not received and will not receive from us any other item of compensation
or expense in connection with this offering considered by the Financial Industry Regulatory Authority to be underwriting compensation
under its rule of fair price. The underwriting discount was determined through an arms&rsquo; length negotiation between us and
the underwriter. Aegis Capital Corp. is acting as a financial advisor in connection with this offering and will be entitled to
a financial advisory fee of $50,000, which amount will be paid by the underwriter out of the underwriting commission.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have agreed to indemnify the underwriter against certain
liabilities, including civil liabilities under the Securities Act, or to contribute to payments that the underwriter may be required
to make in respect of those liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We and each of our directors and executive officers are subject
to lock-up agreements that prohibit us and them from offering for sale, pledging, announcing the intention to sell, selling, contracting
to sell, granting any option, right or warrant to purchase, or otherwise transferring or disposing of, any shares of our common
stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period of at least
90&nbsp;days following the date of this prospectus without the prior written consent of the underwriter. The lock-up agreements
do not prohibit our directors and executive officers from transferring shares of our common stock for bona fide estate or tax planning
purposes, subject to certain requirements, including that the transferee be subject to the same lock-up terms. The lock-up provisions
also do not prevent us from selling shares to the underwriter pursuant to the underwriting agreement, and do not prevent us from
granting options to acquire securities under our existing stock option plans or issuing shares upon the exercise or conversion
of securities outstanding on the date of this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The 90-day lock-up period in all of the lock-up agreements is
subject to extension if (i)&nbsp;during the last 17&nbsp;days of the lock-up period we issue an earnings release or material news
or a material event relating to us occurs or (ii)&nbsp;prior to the expiration of the lock-up period, we announce that we will
release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions
imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance
of the earnings release or the occurrence of the material news or material event. The restrictions in the lock-up agreements may
be waived at any time in the sole discretion of the underwriter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">To facilitate the offering, the underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of our common stock during and after the offering. Specifically, the underwriter
may over-allot or otherwise create a short position in the common stock for their own account by selling more shares of common
stock than we have sold to the underwriter. Short sales involve the sale by the underwriter of a greater number of shares than
the underwriter is required to purchase in the offering. The underwriter may close out any short position by either exercising
their option to purchase additional shares or purchasing shares in the open market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In addition, the underwriter may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the open market and may impose penalty bids. If penalty
bids are imposed, selling concessions allowed to syndicate members or other broker-dealers participating in the offering are reclaimed
if shares of common stock previously distributed in the offering are repurchased, whether in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain the market price of the common stock at a level
above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the common
stock to the extent that it discourages resales of the common stock. The magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on the NASDAQ Capital Market or otherwise and, if commenced, may be discontinued
at any time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The underwriter may also engage in passive market making transactions
in our common stock. Passive market making consists of displaying bids on the NASDAQ Capital Market limited by the prices of independent
market makers and effecting purchases limited by those prices in response to order flow. Rule&nbsp;103 of Regulation&nbsp;M promulgated
by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive
market making may stabilize the market price of the common stock at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">This prospectus may be available in electronic format on websites
or other online resources maintained by the underwriter or its affiliates and the underwriter may distribute this prospectus electronically.
Other than this prospectus in electronic format, the information on such websites and any information contained in any other website
maintained by the underwriter or any of its affiliates is not part of this has not been approved or endorsed by us or the underwriter
in its capacity as underwriter and should not be relied upon by investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The underwriter and its affiliates have provided in the past
to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment
banking, and other services for us and such affiliates in the ordinary course of their business, for which they may receive customary
fees and commissions. In addition, from time to time, the underwriter and its affiliates may effect transactions for their own
account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or
equity securities or loans, and may do so in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Selling Restrictions </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Sales outside the United States.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;No
action has been taken in any jurisdiction, except in the United States, that would permit a public offering of the common shares,
or the possession, circulation or distribution of this prospectus or any other material relating to us or the common shares in
any jurisdiction where action for that purpose is required. Accordingly, the common shares may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the common shares
may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations
of any such country or jurisdiction. The underwriter may arrange to sell common shares offered hereby in certain jurisdictions
outside the United States, either directly or through affiliates, where it is permitted to do so.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in European Economic Area.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;In
relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, with effect from and
including the date on which the Prospectus Directive is implemented in that Member State, an offer of securities may not be made
to the public in that Member State, other than:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(a)</TD><TD>to any legal entity that is a qualified investor as defined in the Prospectus Directive;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(b)</TD><TD>to fewer than 100 or, if that Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural
or legal persons (other than &ldquo;qualified investors&rdquo; as defined in the Prospectus Directive) subject to obtaining the
prior consent of the representatives; or</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(c)</TD><TD>in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">provided that no such offer of securities shall require us or
the underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">For the purposes of the above, the expression an &ldquo;offer
of securities to the public&rdquo; in relation to any securities in any Member State means the communication in any form and by
any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide
to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus
Directive in that Member State (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in
that Member State), and the expression &ldquo;Prospectus Directive&rdquo; means Directive 2003/71/EC and includes any relevant
implementing measure in that Member State, and the expression &ldquo;2010 PD Amending Directive&rdquo; means Directive 2010/73/EU.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in the United Kingdom.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed
at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospective Directive
(&ldquo;qualified investors&rdquo;) that also: (i)&nbsp;have professional experience in matters relating to investments falling
within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the &ldquo;Order&rdquo;);
(ii)&nbsp;who fall within Article 49(2)(a) to (d)&nbsp;of the Order; or (iii)&nbsp;to whom it may otherwise lawfully be communicated
(all such persons together being referred to as &ldquo;relevant persons&rdquo;). The shares are only available to, and any invitation,
offer or agreement to purchase or otherwise acquire such shares will be engaged in only with, relevant persons. This prospectus
and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by
recipients to any other person in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not
act or rely on this prospectus or any of its contents.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The distribution of this prospectus in the United Kingdom to
anyone not falling within the above categories is not permitted and may contravene the Order. No person falling outside those categories
should treat this prospectus as constituting a promotion to him, or act on it for any purposes whatever. Recipients of this prospectus
are advised that we, the underwriter and any other person that communicates this prospectus are not, as a result solely of communicating
this prospectus, acting for or advising them and are not responsible for providing recipients of this prospectus with the protections
that would be given to those who are clients of any aforementioned entities that is subject to the Financial Services Authority
Rules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in Switzerland.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;The
shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock
exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards
for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing
prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility
in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares or the offering may
be publicly distributed or otherwise made publicly available in Switzerland.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Neither this prospectus nor any other offering or marketing
material relating to the offering, us, or the shares have been or will be filed with or approved by any Swiss regulatory authority.
In particular, this prospectus will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market
Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective
Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under
the CISA does not extend to acquirers of the shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in France.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus (including any amendment, supplement or replacement thereto) has not been prepared in connection with the offering of
our securities that has been approved by the Autorit&eacute; des march&eacute;s financiers or by the competent authority of another
State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorit&eacute; des march&eacute;s
financiers; no security has been offered or sold and will be offered or sold, directly or indirectly, to the public in France except
to permitted investors, or Permitted Investors, consisting of persons licensed to provide the investment service of portfolio management
for the account of third parties, qualified investors (investisseurs qualifi&eacute;s) acting for their own account and/or corporate
investors meeting one of the four criteria provided in article D. 341-1 of the French Code Mon&eacute;taire et Financier and belonging
to a limited circle of investors (cercle restreint d&rsquo;investisseurs) acting for their own account, with &ldquo;qualified investors&rdquo;
and &ldquo;limited circle of investors&rdquo; having the meaning ascribed to them in Article L. 411-2, D. 411-1, D. 411-2, D. 734-1,
D. 744-1, D. 754-1 and D. 764-1 of the French Code Mon&eacute;taire et Financier; neither this prospectus nor any other materials
related to the offer or information contained therein relating to our securities has been released, issued or distributed to the
public in France except to Permitted Investors; and the direct or indirect resale to the public in France of any securities acquired
by any Permitted Investors may be made only as provided by articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of
the French Code Mon&eacute;taire et Financier and applicable regulations thereunder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in Italy.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;The
offering of the securities has not been registered pursuant to the Italian securities legislation and, accordingly, we have not
offered or sold, and will not offer or sell, our common stock in the Republic of Italy in a solicitation to the public, and that
sales of our common stock in the Republic of Italy shall be effected in accordance with all Italian securities, tax and exchange
control and other applicable laws and regulations. In any case, our common stock cannot be offered or sold to any individuals in
the Republic of Italy either in the primary market or the secondary market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We will not offer, sell or deliver any securities or distribute
copies of this prospectus or any other document relating to our common stock in the Republic of Italy except to &ldquo;Professional
Investors,&rdquo; as defined in Article 31.2 of CONSOB Regulation No.&nbsp;11522 of 2&nbsp;July 1998 as amended (&ldquo;Regulation
No.&nbsp;11522&rdquo;), pursuant to Article 30.2 and 100 of Legislative Decree No.&nbsp;58 of 24&nbsp;February 1998 as amended
(&ldquo;Decree No.&nbsp;58&rdquo;), or in any other circumstances where an expressed exemption to comply with the solicitation
restrictions provided by Decree No.&nbsp;58 or Regulation No.&nbsp;11971 of 14&nbsp;May 1999 as amended applies, provided, however,
that any such offer, sale or delivery of our common stock or distribution of copies of this prospectus or any other document relating
to our common stock in the Republic of Italy must be:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(a)</TD><TD>made by investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in
accordance with Legislative Decree No.&nbsp;385 of 1&nbsp;September 1993 as amended (&ldquo;Decree No.&nbsp;385&rdquo;), Decree
No.&nbsp;58, CONSOB Regulation No.&nbsp;11522 and any other applicable laws and regulations;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(b)</TD><TD>in compliance with Article 129 of Decree No.&nbsp;385 and the implementing instructions of the Bank of Italy, pursuant to which
the issue, trading or placement of securities in Italy is subject to a prior notification to the Bank of Italy, unless an exemption,
depending, inter alia, on the aggregate amount and the characteristics of our common stock issued or offered in the Republic of
Italy, applies; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(c)</TD><TD>in compliance with any other applicable notification requirement or limitation which may be imposed by CONSOB or the Bank of
Italy.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in Germany.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus has not been prepared in accordance with the requirements for a securities or sales prospectus under the German Securities
Prospectus Act (Wertpapierprospektgesetz), the German Sales Prospectus Act (Verkaufsprospektgesetz), or the German Investment Act
(Investmentgesetz). Neither the German Federal Financial Services Supervisory Authority (Bundesanstalt fur Finanzdienstleistungsaufsicht
&ndash; BaFin) nor any other German authority has been notified of the intention to distribute shares of our common stock in Germany.
Consequently, shares of our common stock may not be distributed in Germany by way of public offering, public advertisement or in
any similar manner AND THIS PROSPECTUS AND ANY OTHER DOCUMENT RELATING TO THE OFFERING, AS WELL AS INFORMATION OR STATEMENTS CONTAINED
THEREIN, MAY NOT BE SUPPLIED TO THE PUBLIC IN GERMANY OR USED IN CONNECTION WITH ANY OFFER FOR SUBSCRIPTION OF SHARES OF OUR COMMON
STOCK TO THE PUBLIC IN GERMANY OR ANY OTHER MEANS OF PUBLIC MARKETING. Shares of our common stock are being offered and sold in
Germany only to qualified investors which are referred to in Section&nbsp;3, paragraph 2 no. 1, in connection with Section&nbsp;2,
no. 6, of the German Securities Prospectus Act, Section&nbsp;8f paragraph 2 no. 4 of the German Sales Prospectus Act, and in Section&nbsp;2
paragraph 11 sentence 2 no. 1 of the German Investment Act. This prospectus is strictly for use of the person who has received
it. This prospectus may not be forwarded to other persons or published in Germany.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in Norway.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;Shares
of our common stock will not be offered in Norway other than (i)&nbsp;to investors who are deemed professional investors under
Section&nbsp;5-4 of the Norwegian Securities Trading Act of 1997 as defined in Regulation no. 1424 of 9&nbsp;December 2005 (&ldquo;Professional
Investors&rdquo;); (ii)&nbsp;to fewer than 100 investors that are not Professional Investors or with a total consideration of less
than EUR 100,000 calculated over a period of 12 months; or (iii)&nbsp;with a minimum subscription amount of EUR 50,000. Consequently,
no public offering will be made in Norway and this prospectus has not been filed with or approved by any Norwegian authority. This
prospectus must not be reproduced or otherwise distributed to others by the recipient.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Notice to prospective investors in Finland.</I></B>&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus has not been prepared to comply with the standards and requirements regarding public offering set forth in the Finnish
Securities Market Act (1989/495, as amended) and it has not been approved by the Finnish Financial Supervision Authority. Shares
of our common stock may not be offered, sold, advertised or otherwise marketed in Finland under circumstances which constitute
public offering of securities under Finnish law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B><I>Acceptance of prospectus.&nbsp;&nbsp;&nbsp;&nbsp;</I></B>By
accepting this prospectus, the recipient represents and warrants that he is entitled to receive it in accordance with the restrictions
set forth above and agrees to be bound by limitations contained herein. Any failure to comply with these limitations may constitute
a violation of law.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>LEGAL MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The validity of the securities offered hereby will be passed
upon for us by Ballard Spahr LLP, Philadelphia, Pennsylvania. Faegre Baker Daniels LLP, Denver, Colorado, has acted as counsel
for the underwriter in connection with certain legal matters related to this offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>EXPERTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The audited financial statements of Venaxis, Inc. included herein
have been audited by GHP Horwath, P.C., independent registered public accounting firm, for the periods and to the extent set forth
in their report appearing herein. Such financial statements have been so included in reliance upon the report of such firm given
upon the firm&rsquo;s authority as an expert in auditing and accounting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>WHERE YOU CAN FIND MORE INFORMATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have filed with the SEC a registration statement on Form
S&minus;1 under the Securities Act to register our common stock being offered in this prospectus. This prospectus, which constitutes
a part of the registration statement, does not contain all the information set forth in the registration statement or the exhibits
and schedules filed thereto. For further information about us and our securities offered by this prospectus, we refer you to the
registration statement and the exhibits and schedules filed with the registration statement. Any statement contained in this prospectus
regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement is not necessarily
complete and each such statement is qualified in all respects by reference to the full text of such contract or other document
filed as an exhibit to the registration statement. You may read and copy any materials we file with the SEC, including the registration
statement, at the SEC&rsquo;s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during
the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC
at 1&minus;800&minus;SEC&minus;0330. The SEC also maintains an Internet website that contains reports, proxy statements and other
information about issuers, like us, that file electronically with the SEC. The address of that website is http://www.sec.gov. Information
on or accessible through the SEC&rsquo;s website is not a part of this prospectus. You may also inspect our SEC reports and other
information at our website at www.venaxis.com. Information on or accessible through our website is not a part of this prospectus.
We are subject to the information reporting requirements of the Exchange Act, and file reports, proxy statements and other information
with the SEC. These reports, proxy statements and other information are available for inspection and copying at the public reference
room and website of the SEC referred to above.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>VENAXIS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>INDEX TO FINANCIAL STATEMENTS<FONT STYLE="color: #465361"></FONT></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B><FONT STYLE="color: #465361">&nbsp;</FONT></B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 92%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 7%; border-bottom: Black 1pt solid">Page</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD><U>Annual Financial Statements</U></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Report of Independent Registered Public Accounting Firm</TD>
    <TD>&nbsp;</TD>
    <TD>F-2</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Balance Sheets</TD>
    <TD>&nbsp;</TD>
    <TD>F-3</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Operations</TD>
    <TD>&nbsp;</TD>
    <TD>F-4</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Statements of Stockholders&rsquo; Equity</TD>
    <TD>&nbsp;</TD>
    <TD>F-5</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Cash Flows</TD>
    <TD>&nbsp;</TD>
    <TD>F-6</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Notes to Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD>F-7</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 92%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 7%; border-bottom: Black 1pt solid">Page</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD><U>Interim Condensed Unaudited Financial Statements</U></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Balance Sheets</TD>
    <TD>&nbsp;</TD>
    <TD>F-23</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Statements of Operations</TD>
    <TD>&nbsp;</TD>
    <TD>F-24</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Cash Flows</TD>
    <TD>&nbsp;</TD>
    <TD>F-25</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Notes to Financial Statements</TD>
    <TD>&nbsp;</TD>
    <TD>F-26</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Board of Directors and Shareholders</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Venaxis, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We have audited the accompanying balance sheets of Venaxis,
Inc. (formerly AspenBio Pharma, Inc.)&nbsp;&nbsp;(&ldquo;the Company&rdquo;) as of December 31, 2012 and 2011, and the related&nbsp;&nbsp;statements
of operations, stockholders&rsquo; equity, and cash flows for each of the three years in the period ended December 31, 2012.&nbsp;&nbsp;These
financial statements are the responsibility of the Company&rsquo;s management. Our responsibility is to express an opinion on these
financial statements based on our audits.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Venaxis, Inc. as of December 31, 2012 and 2011, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting
principles generally accepted in the United States of America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%; border-bottom: Black 1pt solid">/s/ GHP HORWATH, P.C.</TD>
    <TD STYLE="width: 60%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="background-color: white">Denver, Colorado</FONT></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="background-color: white">March 26, 2013</FONT></TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Balance Sheets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>December 31,</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: center; padding-left: 0.1in">ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Current assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Cash and cash equivalents</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">10,977,974</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,968,104</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Short-term investments (Note 1)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,162,904</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,003,124</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Accounts receivable (Note 1)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">35,016</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Prepaid expenses and other current assets</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">387,480</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">314,800</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.35in">Total current assets</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">12,528,358</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,321,044</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Property and equipment, net (Note 2)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,484,539</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,795,149</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.1in">Other long term assets, net (Notes 1 and 3)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,601,894</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,611,652</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Total assets</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">16,614,791</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">8,727,845</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: center; padding-left: 0.1in">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Current liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Accounts payable</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">613,925</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">581,713</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Accrued compensation</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">452,878</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">47,622</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Accrued expenses</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">642,055</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">368,406</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Notes and other obligations, current portion (Note 4)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,290,292</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,074,185</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Deferred revenue, current portion (Note 7)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">79,803</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.35in">Total current liabilities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4,078,953</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,071,926</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Notes and other obligations, less current portion (Note 4)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">763,132</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,830,041</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.1in">Deferred revenue, less current portion (Note 7)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,081,706</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.35in">Total liabilities</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">5,923,791</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">4,901,967</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Commitments and contingencies (Notes 7 and 10)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Stockholders&rsquo; equity (Notes 5 and 6):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock, no par value, 30,000,000 shares authorized; 9,954,380 and 1,608,146 shares issued and outstanding</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">84,924,133</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">68,846,796</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Accumulated deficit</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(74,233,133</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(65,020,918</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.35in">Total stockholders&rsquo; equity</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">10,691,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">3,825,878</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Total liabilities and stockholders&rsquo; equity</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">16,614,791</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">8,727,845</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Statements of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Years ended December 31,</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97); text-align: left">Sales (Note 1)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">41,557</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">219,420</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">370,229</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">Cost of sales</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">592</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">16,345</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">358,094</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 0.25in">Gross profit</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">40,965</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">203,075</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">12,135</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Other revenue - fee (Note 7)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">20,571</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">62,179</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">68,394</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Operating expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Selling, general and administrative</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,184,823</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,575,221</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">7,417,686</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 9pt">Research and development</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">3,838,375</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">5,666,221</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">6,112,405</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total operating expenses</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">9,023,198</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">11,241,442</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">13,530,091</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Operating loss</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(8,961,662</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(10,976,188</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(13,449,562</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Other income (expense):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Interest, net</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(248,629</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(180,509</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(132,786</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Gain on contract termination (Note 7)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">938,896</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 9pt">Other income (expense) (Note 8)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(1,924</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">4,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">244,629</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total other (expense) income</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(250,553</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">762,387</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">111,843</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net loss</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(9,212,215</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(10,213,801</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(13,337,719</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt">Basic and diluted net loss per share (Note 1)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(1.84</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(7.61</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(10.17</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Basic and diluted weighted average number of common shares outstanding (Notes 1 and 5)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">4,996,827</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,341,379</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,310,956</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Statements of Stockholders&rsquo; Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Years ended December 31, 2012, 2011 and
2010</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Common Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; padding-bottom: 1pt">Accumulated</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Deficit</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; color: rgb(70,83,97); font-weight: bold; text-indent: -0.1in; padding-left: 0.1in">Balance, January 1, 2010</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,251,624</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">54,283,126</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(41,469,398</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">12,813,728</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock options exercised</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,701</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">291,028</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">291,028</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Stock-based compensation issued for services</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,363,871</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,363,871</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock issued for cash, net of offering costs of $883,471</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">80,321</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">9,116,529</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">9,116,529</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net loss for the year</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(13,337,719</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(13,337,719</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-indent: -0.1in; padding-left: 0.1in">Balance, December 31, 2010</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,340,646</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">66,054,554</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(54,807,117</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">11,247,437</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Stock-based compensation issued for services</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,336,177</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,336,177</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock issued for cash, net of offering costs of $181,035</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">267,500</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,456,065</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,456,065</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net loss for the year</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(10,213,801</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(10,213,801</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-indent: -0.1in; padding-left: 0.1in">Balance, December 31, 2011</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,608,146</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">68,846,796</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(65,020,918</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,825,878</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Stock-based compensation issued for services</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">901,161</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">901,161</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock issued for consulting services</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,334</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">29,776</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">29,776</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Common stock issued for cash, net of offering costs of $1,753,190</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,337,900</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">15,146,400</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">15,146,400</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net loss for the year</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(9,212,215</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(9,212,215</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Balance, December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">9,954,380</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">84,924,133</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">(74,233,133</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">10,691,000</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Statements of Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Years ended December 31,</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Cash flows from operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%; color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Net loss</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(9,212,215</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(10,213,801</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(13,337,719</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Adjustments to reconcile net loss to net cash used by operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Stock-based compensation for services</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">930,937</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,336,177</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,363,871</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Depreciation and amortization</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">430,228</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">490,515</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">492,160</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Impairment charges</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">44,554</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">274,941</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">107,443</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Amortization of license fee</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(20,571</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(62,179</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(68,394</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Gain on contract termination</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(938,896</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.35in">Loss on equipment disposals</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,924</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 34.2pt">(Increase) decrease in:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Accounts receivable</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">35,016</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">38,160</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(25,217</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Prepaid expenses and other current assets</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">407,955</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">426,825</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">403,271</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 34.2pt">Increase (decrease) in:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Accounts payable</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">32,212</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">284,543</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(419,377</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.6in">Accrued expenses</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">273,649</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">210,721</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(206,737</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.35in">Accrued compensation</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">405,256</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(179,948</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(15,915</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.35in">Deferred revenue</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,182,080</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net cash used in operating activities</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(5,488,975</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(8,332,942</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(10,706,614</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Cash flows from investing activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Purchases of investment securities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,991,644</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,043,192</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(7,628,977</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Sales of investment securities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,831,864</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,972,256</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,206,909</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Purchases of property and equipment</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(43,692</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(90,100</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(191,509</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Patent and trademark application costs</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(112,646</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(228,163</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(309,898</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net cash (used in) provided by investing activities</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(316,118</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,610,801</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(2,923,475</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Cash flows from financing activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Repayment of notes payable and other obligations</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,331,437</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(673,900</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(236,165</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Net proceeds from issuance of common stock</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">15,146,400</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,456,065</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">9,116,529</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Proceeds from exercise of warrants and options</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">291,028</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 16.2pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 16.2pt">Net cash provided by financing activities</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">13,814,963</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">782,165</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">9,171,392</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Net increase (decrease) in cash and cash equivalents</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,009,870</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(5,939,976</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(4,458,697</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; padding-bottom: 1pt; text-indent: -0.1in; padding-left: 0.1in">Cash and cash equivalents, at beginning of year</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">2,968,104</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">8,908,080</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">13,366,777</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); font-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Cash and cash equivalents, at end of year</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">10,977,974</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,968,104</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">8,908,080</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 0.1in">Supplemental disclosure of cash flow information:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Cash paid during the year for:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.35in">Interest</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">244,737</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">180,915</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">194,533</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.1in; padding-left: 0.1in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; text-indent: -0.1in; padding-left: 16.2pt">Schedule of non-cash investing and financing transactions:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.35in">Acquisitions of assets for installment obligations</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">480,635</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">454,830</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">293,873</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Notes to Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 1.&nbsp;&nbsp;Organization and summary of significant
accounting policies:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Nature of operations:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Venaxis, Inc. (the &ldquo;Company&rdquo; or &ldquo;Venaxis&rdquo;)
was organized on July 24, 2000, as a Colorado corporation.&nbsp;&nbsp;In December 2012, the Company&rsquo;s name was changed to
Venaxis, Inc., from AspenBio Pharma, Inc.&nbsp;&nbsp;Venaxis&rsquo; business is in the development and commercialization of innovative
products that address unmet diagnostic and therapeutic needs. The Company&rsquo;s lead product candidate, <I>APPY1</I>, is designed
to be a novel blood-based diagnostic test that, if successfully cleared to be marketed by the United States Food and Drug Administration
(&ldquo;FDA&rdquo;), will aid, through the test&rsquo;s negative predictive value, in the evaluation of low risk patients initially
suspected of having acute appendicitis, thereby helping address the difficult challenge of triaging possible acute appendicitis
patients in the hospital emergency department or urgent care settings.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company&rsquo;s research and development activities are
currently focused primarily on a human acute appendicitis blood-based test.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Management&rsquo;s plans and basis of
presentation:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has experienced recurring losses and negative cash
flows from operations.&nbsp;&nbsp;At December 31, 2012, the Company had approximate balances of cash and liquid investments of
$12,141,000, working capital of $8,449,000, total stockholders&rsquo; equity of $10,691,000 and an accumulated deficit of $74,233,000.
To date, the Company has in large part relied on equity financing to fund its operations.&nbsp; The Company expects to continue
to incur losses from operations for the near-term and these losses could be significant as product development, clinical and regulatory
activities, contract consulting and other product development related expenses are incurred. The Company believes that its current
working capital position will be sufficient to meet its estimated cash needs for the remainder of 2013 and at least into 2014.&nbsp;&nbsp;If
the Company does not obtain additional capital, the Company would potentially be required to reduce the scope of its research and
development activities or cease operations.&nbsp;&nbsp;The Company continues to explore obtaining additional financing.&nbsp;&nbsp;The
Company is closely monitoring its cash balances, cash needs and expense levels.&nbsp;In addition the Company&rsquo;s first mortgage
which is held by a commercial bank requires a balloon payment of approximately $1.6 million due in July 2013.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management&rsquo;s strategic plans include
the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to advance development of the Company&rsquo;s principal product, <I>APPY1</I>;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>pursuing additional capital raising opportunities;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to explore prospective partnering or licensing opportunities with complementary opportunities and&nbsp;technologies;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>continuing to monitor and implement cost control initiatives to conserve cash; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>refinance the portion of the mortgage payable in July 2013.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Cash, cash equivalents and short-term investments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company considers all highly liquid investments with an
original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company&rsquo;s
cash account balances exceed the balances as covered by the Federal Deposit Insurance System. The Company has never suffered a
loss due to such excess balances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company invests excess cash from time to time in highly-liquid
debt and equity investments of highly-rated entities which are classified as trading securities. The purpose of the investments
is to fund research and development, product development, FDA approval-related activities and general corporate purposes. Such
amounts are recorded at market values using Level 1 inputs in determining fair value and are classified as current, as the Company
does not intend to hold the investments beyond twelve months. Investment securities classified as trading are those securities
that are bought and held principally for the purpose of selling them in the near term, with the objective of preserving principal
and generating profits. These securities are reported at fair value with unrealized gains and losses reported as an element of
other income (expense) in current period earnings. The Board of Directors has approved an investment policy covering the investment
parameters to be followed with the primary goals being the safety of principal amounts and maintaining liquidity of the fund. The
policy provides for minimum investment rating requirements as well as limitations on investment duration and concentrations. Based
upon market conditions, the investment guidelines have been tightened to increase the minimum acceptable investment ratings required
for investments and shorten the maximum investment term. As of December 31, 2012, 89% of the investment portfolio was in cash equivalents,
which is presented as such on the accompanying balance sheet, and the remaining funds were invested in short-term marketable securities
with none individually representing a material amount to the portfolio and none with maturities past November 2013. As of December
31, 2012, the Company&rsquo;s cumulative realized market loss from the investments has not been in excess of $5,000. For the year
ended December 31, 2012, there was $11,192 in unrealized loss, $102 in realized gain for the year and $5,532 in management fees.&nbsp;
For the year ended December 31, 2011, there was $1,004 in unrealized loss, $3,505 in realized loss, $1,073 in realized gain for
the year and $9,248 in management fees.&nbsp;&nbsp;For the year ended December 31, 2010, there was $1,065 in unrealized income,
$1,388 in unrealized loss, $2,023 in realized gain for the year and $17,959 in management fees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Fair value of financial instruments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company accounts for financial instruments under Financial
Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 820,<I> Fair Value Measurements</I>.&nbsp; This
statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements.&nbsp; To increase consistency and comparability in fair value measurements,
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three levels as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 9.35pt">Level 1 &mdash; quoted prices (unadjusted) in active
markets for identical assets or liabilities;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 9.35pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 9.35pt">Level 2 &mdash; observable inputs other than Level
1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable;
and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 9.35pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 9.35pt">Level 3 &mdash; assets and liabilities whose significant
value drivers are unobservable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Observable inputs are based on market data obtained from independent
sources, while unobservable inputs are based on the Company&rsquo;s market assumptions.&nbsp; Unobservable inputs require significant
management judgment or estimation.&nbsp; In some cases, the inputs used to measure an asset or liability may fall into different
levels of the fair value hierarchy.&nbsp; In those instances, the fair value measurement is required to be classified using the
lowest level of input that is significant to the fair value measurement.&nbsp; Such determination requires significant management
judgment. There were no financial assets or liabilities measured at fair value, with the exception of cash, cash equivalents (level
1) and short-term investments (level 2) as of December 31, 2012 and December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The carrying amounts of the Company&rsquo;s financial instruments
(other than cash, cash equivalents and short-term investments as discussed above) approximate fair value because of their variable
interest rates and / or short maturities combined with the recent historical interest rate levels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Revenue recognition and accounts receivable:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">We recognize sales of goods under the provisions of the FASB
ASC 605 (&ldquo;ASC 605&rdquo;) and the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, <I>Revenue
Recognition</I>. Future revenue is expected to be generated primarily from the sale of products. Product revenue primarily consists
of sales of instrumentation and consumables.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Revenue is recognized when the following four basic criteria
have been met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and risk of loss has passed; (iii)
the seller&rsquo;s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In international markets, the Company sells its products to
distributors or re-sellers, who subsequently resell the products to hospitals. The Company has an agreement with the distributor
which provides that title and risk of loss pass to the distributor upon shipment of the products, FOB to the distributor. Revenue
is recognized upon shipment of products to the distributor as the products are shipped based on FOB shipping point terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Revenues are recorded less a reserve for estimated product returns
and allowances which to date has not been significant. Determination of the reserve for estimated product returns and allowances
is based on management&rsquo;s analyses and judgments regarding certain conditions. Should future changes in conditions prove management&rsquo;s
conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be adversely
affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company extends credit to customers generally without requiring
collateral. Historically, the Company&rsquo;s base antigen business has sold products primarily throughout North America. At December
31, 2012, the Company did not have any accounts receivable.&nbsp;&nbsp;At December 31, 2011, two customers accounted for 73% and
19% of total accounts receivable.&nbsp; During the year ended December 31, 2012, three customers accounted for a total of 83% of
net sales, each representing 40%, 30% and 13%, respectively. During the years ended December 31, 2011 and 2010, one European-based
company, accounted for a total of 3% and 4%, respectively of our net sales. During the year ended December 31, 2011, two customers
accounted for a total of 42% of net sales, each representing 28% and 14%, respectively. During the year ended December 31, 2010,
four customers accounted for a total of 58% of net sales, each representing 19%, 18%, 11% and 10%, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Property and equipment:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Property and equipment is stated at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, generally twenty-five years for the building, ten years
for land improvements, five years for equipment and three years for computer related assets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Goodwill:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Goodwill, arose from the initial formation of the Company, and
represents the purchase price paid and liabilities assumed in excess of the fair market value of tangible assets acquired.&nbsp;&nbsp;The
Company performs a goodwill impairment analysis in the fourth quarter of each year, or whenever there is an indication of impairment.&nbsp;&nbsp;When
conducting its annual goodwill impairment assessment, the Company initially performs a qualitative evaluation to determine if it
is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether
it is necessary to perform a two-step goodwill impairment test.&nbsp;&nbsp;The Company has determined, based on its qualitative
evaluation, that it was not necessary to perform the two-step goodwill impairment test and that no impairment had occurred as of
December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Impairment of long-lived assets:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Management reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets.&nbsp;&nbsp;Based on its review, including an updated
assessment subsequent to year end, management determined that certain costs previously incurred for patents had been impaired during
the years ended December 31, 2012, 2011 and 2010.&nbsp;&nbsp;Approximately $45,000, $275,000 and $107,000 of such patent costs
were determined to be impaired during the years ended December 31, 2012, 2011 and 2010, respectively resulting from management&rsquo;s
decisions not to pursue patents based upon a cost benefit analysis of patent expenses and coverage protection in several smaller
world markets that were determined to not have the economic or fiscal potential to make the patent pursuit viable. Impairment charges
are included in research and development expenses in the accompanying statements of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Research and development:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Research and development costs are charged to expense as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Use of estimates:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance
sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly
from those estimates.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Income taxes:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company accounts for income taxes under the asset and liability
method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
A valuation allowance is required to the extent any deferred tax assets may not be realizable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company does not have an accrual for uncertain tax positions
as of December 31, 2012 and 2011.&nbsp;&nbsp;The Company files corporate income tax returns with the Internal Revenue Service and
the states where the Company determines it is required to do so, and there are open statutes of limitations for tax authorities
to audit the Company&rsquo;s tax returns from 2009 through the current period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company&rsquo;s policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense. At December 31, 2012, the Company did not have any
accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the
years ended December 31, 2012, 2011 or 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Stock-based compensation:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Venaxis recognizes the cost of employee services received in
exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the
award. Stock option compensation expense is recognized over the period during which an employee is required to provide service
in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant
date by using the Black-Scholes option pricing model.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Reclassifications:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Certain prior period amounts in the accompanying financial statements
have been reclassified to conform to the presentation used in 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Income (loss) per share:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">ASC 260,<I> Earnings Per Share</I>, requires dual presentation
of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of the entity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Basic earnings (loss) per share includes no dilution and is
computed by dividing net earnings (loss) available to stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the Company&rsquo;s
earnings (loss). The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share during
the years ended December 31, 2012, 2011 and 2010. Accordingly, the weighted average shares outstanding have not been adjusted for
dilutive shares. Outstanding stock options and warrants are not considered in the calculation, as the impact of the potential common
shares (totaling approximately 1,306,000, 497,000 and 214,000 shares for each of the years ended December 31, 2012, 2011 and 2010,
respectively) would be to decrease the net loss per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0">In May 2012, the Board of Directors authorized a reverse stock split of the Company&rsquo;s common stock
at a ratio of one-for-six, whereby each six shares of common stock were combined into one share of common stock (the &ldquo;2012
Reverse Stock Split&rdquo;).&nbsp;All historical references to shares and share amounts in this report have been retroactively
revised to reflect the 2012 Reverse Stock Split, the principal effects of which were to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">1.</TD><TD>reduce the number of shares of common stock issued and outstanding by a factor of 6;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">2.</TD><TD>increase the per share exercise price of options and warrants by a factor of 6, and decrease the number of shares issuable
upon exercise by a factor of 6, for all outstanding options and warrants entitling the holders to purchase shares of the Company&rsquo;s
common stock; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in">3.</TD><TD>proportionately reduce the number of shares authorized and reserved for issuance under the Company&rsquo;s existing equity
compensation plans.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A reconciliation of historical basic and diluted weighted average
number of shares outstanding retroactively adjusted for the 2012 Reverse Stock Split follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif; margin-left: 1in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year ended<BR> December 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center">2011</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center">2010</TD><TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97)">Basic and diluted weighted average number of shares outstanding</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; color: rgb(70,83,97); padding-left: 0.25in">Pre-split</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">8,032,178</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">7,876,081</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Post-split</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,341,379</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,310,956</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Recently issued and adopted accounting pronouncements:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has evaluated all recently issued accounting pronouncements
and believes such pronouncements do not have a material effect on the Company&rsquo;s financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 2.&nbsp;&nbsp;Property and equipment:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Property and equipment consisted of the following as of December
31:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif; margin-left: 1.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: rgb(70,83,97); text-align: left">Land and improvements</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,107,508</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,107,508</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Building</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,589,231</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2,589,231</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Building improvements</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">251,049</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">251,049</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Laboratory equipment</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,211,418</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,175,047</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Office and computer equipment</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">403,692</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">398,295</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,562,898</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5,521,130</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Less accumulated depreciation</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">3,078,359</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">2,725,981</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,484,539</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,795,149</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Depreciation expense totaled approximately $352,000, $402,000
and $395,000 for each of years ended December 31, 2012, 2011 and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 3.&nbsp;&nbsp;Other long-term assets:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Other long-term assets consisted of the following as of December
31:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif; margin-left: 1.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: rgb(70,83,97); text-align: left; padding-left: 0.125in; text-indent: -0.125in">Patents, trademarks and applications, net of accumulated amortization of $345,692 and $273,550</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,210,698</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,214,748</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Goodwill</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">387,239</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">387,239</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">Other</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">3,957</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">9,665</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,601,894</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,611,652</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company capitalizes legal costs and filing fees associated
with obtaining patents on its new discoveries. Once the patents have been issued, the Company amortizes these costs over the shorter
of the legal life of the patent or its estimated economic life using the straight-line method. Based upon the current status of
the above intangible assets, the aggregate amortization expense is estimated to be approximately $75,000 for each of the next five
fiscal years. The Company tests intangible assets with finite lives upon significant changes in the Company&rsquo;s business environment.
The testing resulted in approximately $45,000, $275,000, and $107,000 of patent impairment charges during the years ended December
31, 2012, 2011, and 2010, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 4.&nbsp;&nbsp;Notes and other obligations:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Notes payable and installment obligations consisted of the following
as of December 31:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif; margin-left: 1.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: rgb(70,83,97); text-align: left">Mortgage notes</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,435,073</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,545,312</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Termination obligation (Note 7)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">397,588</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,152,753</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Other short-term installment obligations</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">220,763</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">206,161</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,053,424</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3,904,226</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Less current portion</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">2,290,292</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">1,074,185</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">763,132</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,830,041</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Mortgage notes:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has a mortgage facility on its land and building.
The mortgage is held by a commercial bank and includes approximately 35% that is guaranteed by the U. S. Small Business Administration
(SBA). The loan is collateralized by the real property and is also personally guaranteed by a former officer of the Company.&nbsp;The
interest rate on the bank portion is one percentage over the Wall Street Journal Prime Rate (minimum 7%), with 7% being the approximate
effective rate for 2012 and 2011, and the SBA portion bears interest at the rate of 5.86%. The commercial bank portion of the loan
requires total monthly payments of approximately $14,200, which includes approximately $9,500 per month in interest, through July
2013 when the then remaining principal balance is due which is estimated to be approximately $1.6 million at that time. The SBA
portion of the loan requires total monthly payments of approximately $9,200 through July 2023, which includes approximately $3,900
per month in interest and fees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Termination obligation:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In November 2011, the Company entered into a Termination Agreement
with Novartis Animal Health, Inc. (the &ldquo;Novartis Termination Agreement&rdquo;) to terminate the Novartis License Agreement
(Note 7).&nbsp;&nbsp;Under the Novartis Termination Agreement, the termination obligation originally totaled $1,374,000, which
was payable $150,000 upon signing the Novartis Termination Agreement and in six equal subsequent quarterly installments of $204,000
each.&nbsp;&nbsp;The Company discounted this obligation at an assumed interest rate of 7% (which represents the rate management
believes it could have borrowed at for similar financings), which totaled $1,303,000.&nbsp;&nbsp;At December 31, 2012, the remaining
outstanding termination obligation totaled approximately $398,000 which is due in 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Other short-term installment obligations:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company has executed financing agreements for certain of
the Company&rsquo;s insurance premiums.&nbsp;&nbsp;At December 31, 2012, these obligations totaled $220,763 all of which are due
in 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Future maturities:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company&rsquo;s total debt obligations require minimum annual
principal payments of approximately $2,290,000 in 2013, $65,000 in 2014, $68,000 in 2015, $72,000 in 2016, $75,000 in 2017 and
$483,000 thereafter, through the terms of the applicable debt agreements.&nbsp;&nbsp;The Company&rsquo;s Exclusive License Agreement
with The Washington University also requires minimum annual royalty payments of $20,000 per year during its term (Note 7).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 5.&nbsp;&nbsp;Stockholders&rsquo; equity:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>2012 Transactions:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In June 2012, the Company completed a public offering of securities
consisting of 6,100,000 shares of common stock at an offering price of $2.00 per share, generating approximately $12.2 million
in total proceeds.&nbsp;Fees and other expenses totaled $1,261,000, including an underwriter&rsquo;s fee of 7%.&nbsp;In connection
with the offering, the underwriter received warrants to purchase a total of 305,000 shares of the Company&rsquo;s common stock.&nbsp;&nbsp;The
exercise price of the warrants is $2.50 per share; the warrants become exercisable in June 2013 and expire in June 2017.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In November 2012, the Company completed a public offering of
securities consisting of 1,946,000 shares of common stock at an offering price of $2.10 per share, generating approximately $3.6
million in total proceeds.&nbsp;Fees and other expenses totaled $445,000, including a underwriter&rsquo;s fee of 7%.&nbsp;In connection
with the offering, the underwriter exercised an over-allotment option to purchase 291,900 additional shares of common stock at
$2.10 per share generating approximately $566,000 net of expenses of approximately $47,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under the terms of an agreement for investor relations services,
the Company issued a total of 8,334 shares of common stock; 4,167 shares of the total were issued in April 2012, at $4.26 per share
and the remaining 4,167 shares were issued in June 2012, at $2.88 per share.&nbsp;&nbsp;The issuance resulted in a total of $29,776
of stock-based compensation being recorded.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>2011 Transactions:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In July 2011 at the annual shareholders meeting the Board of
Directors approved an amendment to the Company&rsquo;s Articles of Incorporation to reduce the authorized common shares from 60
million to 30 million.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In December 2011, the Company completed a registered direct
offering of securities consisting of 267,500&nbsp;units for a negotiated price of $6.12 per unit, generating approximately $1,456,000
in net proceeds to the Company.&nbsp;Fees and other expenses totaled $181,000, including a placement fee of 6.79%.&nbsp;&nbsp;Each
unit consisted of one share of the Company&rsquo;s no par value common stock and one warrant to purchase one share of common stock.&nbsp;
The exercise price of each warrant is $7.32 per share; the warrants are exercisable beginning June 30, 2012 and expire in June
2017.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>2010 Transactions:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In May 2010, the Company completed a registered direct offering
of securities consisting of 80,321 units (Units) for a negotiated price of $124.50 per Unit, generating approximately $9,117,000
in net proceeds to the Company.&nbsp;Fees and other expenses totaled $883,000, including a placement fee of 6.5%.&nbsp;&nbsp;Each
Unit consisted of one share of the Company&rsquo;s no par value common stock and one warrant to purchase 0.285 shares of common
stock.&nbsp;Accordingly, a total of 80,321 shares of common stock and warrants to purchase 22,892 shares of common stock were issued.
The exercise price of the warrants was $144.60 per share; the warrants were exercisable upon issuance for an eight month term and
expired in January 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2010, consultants exercised
options outstanding under the Company&rsquo;s 2002 Stock Incentive Plan (the Plan) as amended and approved by the Company&rsquo;s
shareholders, to purchase 8,702 shares of common stock generating $291,028 in cash proceeds to the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 6.&nbsp;&nbsp;Stock options and warrants:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company currently provides stock-based compensation to employees,
directors and consultants, both under the Company&rsquo;s 2002 Stock Incentive Plan, as amended (the &ldquo;Plan&rdquo;) and non-qualified
options and warrants issued outside of the Plan.&nbsp;&nbsp;In 2012, the Company&rsquo;s shareholders approved amendments to the
Plan to increase the number of shares reserved under the Plan from 250,000 to 1,487,205. The Company estimates the fair value of
the share-based awards on the date of grant using the Black-Scholes option-pricing model (the &ldquo;Black-Scholes model&rdquo;).&nbsp;&nbsp;Using
the Black-Scholes model, the value of the award that is ultimately expected to vest is recognized over the requisite service period
in the statement of operations.&nbsp;&nbsp;Option forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.&nbsp;&nbsp;The Company attributes compensation to expense
using the straight-line single option method for all options granted.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company&rsquo;s determination of the estimated fair value
of share-based payment awards on the date of grant is affected by the following variables and assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>The grant date exercise price &ndash; the closing market price of the Company&rsquo;s common stock on the date of the grant;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Estimated option term &ndash; based on historical experience with existing option holders;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Estimated dividend rates &ndash; based on historical and anticipated dividends over the life of the option;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Term of the option &ndash; based on historical experience, grants have lives of approximately 3-5 years;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Risk-free interest rates &ndash; with maturities that approximate the expected life of the options granted;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Calculated stock price volatility &ndash; calculated over the expected life of the options granted, which is calculated based
on the daily closing price of the Company&rsquo;s common stock over a period equal to the expected term of the option; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Option exercise behaviors &ndash; based on actual and projected employee stock option exercises and forfeitures.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company recognized stock-based compensation during the years
ended December 31, as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97); text-align: left">Stock options to employees, officers, and directors</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">833,351</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,200,118</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,103,276</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Stock options to consultants for:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Investor relations activities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">23,598</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">57,309</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">61,174</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt"><I>APPY1</I> activities</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">38,460</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">54,304</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">38,064</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 9pt">Animal health activities</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">5,752</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">24,446</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">161,357</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Total stock-based compensation</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">901,161</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,336,177</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,363,871</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The above expenses are included in the accompanying Statements
of Operations for the years ended December 31, in the following categories:&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97); text-align: left">Selling, general and administrative expenses</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">862,701</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">1,281,873</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,325,807</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Research and development expenses</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">38,460</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">54,304</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">38,064</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Total stock-based compensation</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">901,161</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,336,177</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2,363,871</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Stock incentive plan options:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company currently provides stock-based compensation to employees,
directors and consultants under the Plan.&nbsp;&nbsp;The Company utilized assumptions in the estimation of fair value of stock-based
compensation for the years ended December 31, as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="color: #465361"><B>2012</B></FONT></TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="color: #465361"><B>2011</B></FONT></TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; text-align: center"><FONT STYLE="color: #465361"><B>2010</B></FONT></TD>
    <TD STYLE="padding-bottom: 1.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%"><FONT STYLE="color: #465361">Dividend yield</FONT></TD>
    <TD STYLE="width: 1%; text-align: right">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 12%; text-align: right"><FONT STYLE="color: #465361">0</FONT></TD>
    <TD STYLE="width: 1%">%</TD>
    <TD STYLE="width: 1%; text-align: right">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 12%; text-align: right"><FONT STYLE="color: #465361">0</FONT></TD>
    <TD STYLE="width: 1%">%</TD>
    <TD STYLE="width: 1%; text-align: right">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 12%; text-align: right"><FONT STYLE="color: #465361">0</FONT></TD>
    <TD STYLE="width: 1%">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="color: #465361">Expected price volatility</FONT></TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">121 to 127</FONT></TD>
    <TD>%</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">119 to 120</FONT></TD>
    <TD>%</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">110 to 119</FONT></TD>
    <TD>%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="color: #465361">Risk free interest rate</FONT></TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">.60 to 1.03</FONT></TD>
    <TD>%</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">1.32 to 2.14</FONT></TD>
    <TD>%</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">1.60 to 2.62</FONT></TD>
    <TD>%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="color: #465361">Expected term</FONT></TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">5 years</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">5 years</FONT></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">5 years</FONT></TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A summary of stock option activity under the Plan for options
to employees, officers, directors and consultants, for the year ended December 31, 2012, is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.7in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted <BR>Average <BR>Remaining <BR>Contractual <BR>Term<BR> (Years)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Aggregate <BR>Intrinsic <BR>Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; color: rgb(70,83,97)">Outstanding at January 1, 2012</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">215,321</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">53.94</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: center">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Granted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">540,378</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.29</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Exercised</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt; padding-left: 0.25in">Forfeited</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(47,759</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">61.79</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Outstanding at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">707,940</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">13.98</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: center">8.8</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">228,800</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Exercisable at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">199,505</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">40.17</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: center">6.2</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">16,250</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The aggregate intrinsic value in the table above represents
the total intrinsic value (the difference between the Company&rsquo;s closing stock price on December 31, 2012 and the exercise
price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders
been able to, and in fact had, exercised their options on December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2012, 540,378 options were
granted under the Plan to employees, officers,&nbsp;directors and consultants with a weighted average exercise price at grant date
of $2.29 per option.&nbsp;&nbsp;Included in the 540,378 options issued, the independent directors were granted a total of 151,992
options at an average exercise price of $2.28 per share; 12,502 of these director options were granted at an exercise price of
$4.26 per share, vesting over a three year period annually in arrears and 139,490 director options were granted at an exercise
price of $2.10 per share vesting after one year. Officers were granted a total of 301,362 options at an average exercise price
of $2.29 per share; 40,668 officer options were granted at an average exercise price of $3.50 per share, vesting over a twelve
month period following grant and 260,694 officer options were granted at an exercise price of $2.10 per share, vesting after one
year.&nbsp;&nbsp;Employees were granted a total of 62,024 options at an average exercise price of $2.46 per share, 11,142 employee
options at an average exercise price of $4.11 per share which vest over a twelve month period following grant and 50,882 options
were granted at an exercise price of $2.10 per share, vesting after one year. Substantially all of the grants to officers and employees
were awarded as retention incentive options.&nbsp;&nbsp;The Company also issued 25,000 options to a consultant at an exercise price
of $1.91 per share, vesting after ninety days. All options granted under the Company&rsquo;s 2002 Stock Incentive Plan expire ten
years from the grant date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31 2012, a total of 47,759 options
that were granted under the Plan to directors, employees, including an officer, and consultants were forfeited, 23,283 of which
were vested and 24,476 were unvested.&nbsp;&nbsp;The options were exercisable at an average of $61.79 per share and were forfeited
upon the employees&rsquo; termination from the Company. During the year ended December 31, 2012, no options were exercised.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2011, 52,267 stock options
were granted under the Plan to employees, officers,&nbsp;directors, and consultants with a weighted average fair value at the grant
date of $19.14 per option. Included in the 52,267 options issued, existing directors and officers were granted a total of 40,834
options at an exercise price of $19.02 per share and existing employees were granted 4,317 options at an exercise price of $18.30
per share, all vesting over a three-year period annually in arrears and expiring in ten years.&nbsp; Four newly hired employees
were granted a total of 450 options at $19.86 per share, all vesting over a three-year period annually in arrears and expiring
in ten years.&nbsp;&nbsp;The Company also issued 6,667 non-qualified options to a consultant at an exercise price of $20.40 per
share which expire in ten years.&nbsp;&nbsp;These non-qualified options are performance related with vesting tied to achieving
specific <I>APPY1</I> clinical and regulatory milestones. During the year ended December 31, 2011, no options were exercised.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2011, a total of 20,912 options
granted under the Plan were forfeited, 11,402 of which were vested and 9,510 which were unvested.&nbsp;&nbsp;The options were exercisable
at an average of $52.50 per share and were forfeited upon the employees&rsquo;, officers and consultant&rsquo;s termination from
the Company.&nbsp;During the year ended December 31, 2010, a total of 1,523 options were forfeited, 445 of which were vested and
1,078 were unvested.&nbsp;&nbsp;The options were exercisable at an average of $79.50 per share and were forfeited upon the employees&rsquo;
terminations from the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2010, 46,600 stock options
were granted under the Plan to employees, officers, directors and consultants with a weighted average fair value at the grant date
of $51.30 per option.&nbsp;&nbsp;During the year ended December 31, 2010, consultants exercised 8,702 options outstanding under
the Company&rsquo;s Plan generating $291,028 in cash and&nbsp;which had an intrinsic value when exercised of $371,130.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The total fair value of stock options granted to employees,
directors and consultants that vested and became exercisable during the years ended December 31, 2012, 2011 and 2010, was $1,486,000,
$2,063,000 and $2,327,000, respectively.&nbsp;&nbsp;Based upon the Company&rsquo;s experience, approximately 85% of the outstanding
stock options, or approximately 432,000 options, are expected to vest in the future, under their terms. A summary of the activity
of non-vested options under the Company&rsquo;s Plan to acquire common shares granted to employees, officers, directors and consultants
during the year ended December 31, 2012 is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested Shares</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested <BR>Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Grant Date <BR>Fair Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97)">Nonvested at January 1, 2012</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">88,986</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">35.64</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">28.98</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Granted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">540,378</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.29</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1.92</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Vested</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(96,453</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">18.92</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">15.40</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt; padding-left: 0.25in">Forfeited</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(24,476</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">28.58</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">23.35</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Nonvested at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">508,435</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">3.70</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">3.07</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">At December 31, 2012, based upon employee, officer, director
and consultant options granted to that point, there was approximately $914,000 additional unrecognized compensation cost related
to stock options that will be recorded over a weighted average future period of approximately one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Effective as of January 1, 2013, in connection with the addition
of a new director, 48,000 stock options were issued to the director, under the Plan, exercisable at $2.56 per share. The options
expire ten years from date of grant and vest as to 50% of the total over three years, annually in arrears and the remaining 50%
commencing quarterly in advance upon the grant date over the following four quarters. During January 2013, in connection with its
annual option grant award cycle, 426,270 options were issued under the Plan to directors, officers and employees, at an exercise
price of $2.04 per share. The options expire ten years from date of grant and vest as to non-employee directors quarterly in advance
over four quarters and as to officers, and employees 50% upon the six month anniversary of grant date and the balance equally over
the following six quarters in arrears. Subsequent to December 31, 2012, 6,582 options related to employee terminations expired
which were exercisable at an average of $2.42 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Other common stock purchase options and warrants:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As of December 31, 2012, in addition to the stock incentive
plan options discussed above, the Company had 598,507 non-qualified options and warrants outstanding in connection with offering
warrants, an officer&rsquo;s employment and investor relations consulting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company utilized assumptions in the estimation of the fair
value of stock-based compensation for the years ended December 31, as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%; border-collapse: collapse; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%; color: rgb(70,83,97); text-align: left">Dividend yield</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 12%; color: rgb(70,83,97); text-align: right">0</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 12%; color: rgb(70,83,97); text-align: right">0</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 12%; color: rgb(70,83,97); text-align: right">0</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Expected price volatility</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right">121</TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">119 to 145</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">128 to 130</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Risk free interest rate</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right">0.74</TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">1.20 to 1.95</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">1.26 to 1.70</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Contractual term</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">5 years</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">3 to 10 years</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD NOWRAP STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); text-align: right"><FONT STYLE="color: #465361">3 years</FONT></TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Operating expenses for the years ended December 31, 2012, 2011
and 2010, include approximately $71,000, $92,000 and $61,000, respectively, related to non-qualified options and warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Following is a summary of outstanding options and warrants that
were issued outside of the Plan for the year ended December 31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares <BR>Underlying <BR>Options /<BR>
Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Weighted <BR>Average <BR>Remaining <BR>Contractual <BR>Term<BR>
(Years)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Aggregate <BR>Intrinsic <BR>Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; color: rgb(70,83,97)">Outstanding at January 1, 2012</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">282,178</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">8.70</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: center">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Granted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">325,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.56</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Exercised</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt; padding-left: 0.25in">Forfeited</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(8,671</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">33.44</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Outstanding at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">598,507</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">5.01</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: center">4.6</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">18,300</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Exercisable at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">285,174</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">7.74</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: center">4.6</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The aggregate intrinsic value in the table above represents
the total intrinsic value (the difference between the Company&rsquo;s closing stock price on December 31, 2012 and the exercise
price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders
been able to, and in fact had, exercised their options on December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In June 2012, the Company completed a $12.2 million public offering
of securities and in connection with that offering, granted the Underwriter warrants to purchase a total of 305,000 shares of common
stock.&nbsp;&nbsp;These warrants which are included in the above table are not exercisable until June 2013 at an exercise price
of $2.50 per share, and expire in June 2017.&nbsp;&nbsp;Included at December 31, 2012 in the 598,507 total outstanding options
and warrants are 572,505 non-compensatory rights granted in connection with public offerings and 26,002 rights issued under compensatory
arrangements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2012, the Company hired a
Senior Vice President and Chief Commercial Officer who previously had a consulting relationship with the Company.&nbsp;&nbsp;As
part of the employment arrangement, the Board of Directors approved an employment-inducement grant made outside of the Company&rsquo;s
Plan, and granted 20,000 options which are exercisable at $3.42 per share. The options vest as to 50% of the total on the six month
anniversary following the grant date and the remaining 50% vesting one-sixth monthly over months seven through twelve following
the grant date. The options expire ten years from the grant date.&nbsp;During the year ended December 31, 2012, 2,004 vested options
previously granted to an investor relations firm expired.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2011, the Company hired a
Vice President of Marketing and Business who previously had a consulting relationship with the Company.&nbsp;&nbsp;As part of the
employment arrangement, the Board approved an employment-inducement grant made outside of the Company&rsquo;s Stock 2002 Incentive
Plan, and he was granted 6,667 options for services which are exercisable at $19.50 per share. The options were scheduled to vest
equally over a three year period however they were forfeited upon the officer&rsquo;s termination from the Company in 2012.&nbsp;Also,
during the year ended December 31, 2011, an investor relations firm was granted 5,000 warrants to purchase shares of common stock
scheduled to vest equally over twelve months from the date of grant and are exercisable at $30.00 per share and expire in three
years. During the year ended December 31, 2011, 4,584 investor relations consultant options expired of which 1,500 were exercisable
at $360.00 per share, 1,251 options were exercisable at $180.30 per share, 1,667 options were exercisable at $167.10 per share
and 166 options at $ $149.70 per share.&nbsp;&nbsp;In addition 22,892 warrants granted at $144.60 per share in connection with
the 2010 public registered direct offering expired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2010, 23,892 stock options
and warrants were granted to an investor relations firm and under a registered direct offering with a weighted average fair value
at the grant date of $141.00 per option.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the years ended December 31, 2012, 2011 and 2010, no
options granted outside of the Plan were exercised.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The total fair value of stock options granted to an investor
relations consulting firm that vested and became exercisable during the years ended December 31, 2012, 2011 and 2010, was $89,000,
$61,000 and $61,000, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A summary of the activity of nonvested, non-qualified options
and warrants granted outside of the Plan in connection with employment and investor relations consulting services for the year
ended December 31, 2012, is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested Shares</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested <BR>Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Grant Date <BR>Fair Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97)">Nonvested at January 1, 2012</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">7,917</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">21.18</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">16.14</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Granted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">20,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3.42</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.84</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 0.25in">Vested</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(15,137</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">7.97</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5.89</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt; padding-left: 0.25in">Forfeited</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(4,447</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">19.50</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">16.11</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">Nonvested at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">8,333</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">3.42</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">2.84</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At December 31, 2012, there was approximately
$22,000 in unrecognized cost for non-qualified options that will be recorded over a weighted average future period of less than
one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subsequent to December 31, 2012, 501 investor
relations options which were exercisable at $54.00 per share expired.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 7.&nbsp;&nbsp;Animal Health License Agreements:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Effective May 1, 2004 Washington University in St. Louis (WU)
and Venaxis entered into an Exclusive License Agreement (WU License Agreement) which grants Venaxis exclusive license and right
to sublicense WU&rsquo;s technology (as defined under the WU License Agreement) for veterinary products worldwide, except where
such products are prohibited under U.S. laws for export. The term of the WU License Agreement continues until the expiration of
the last of WU&rsquo;s patents (as defined in the WU License Agreement) expire.&nbsp;&nbsp;Venaxis has agreed to pay minimum annual
royalties of $20,000 annually during the term of the WU License Agreement and such amounts are creditable against future royalties.&nbsp;&nbsp;Royalties
payable to WU under the WU License Agreement for covered product sales by Venaxis carry a mid-single digit royalty rate and for
sublicense fees received by Venaxis&nbsp;carry a low double-digit royalty rate.&nbsp;&nbsp;The WU License Agreement contains customary
terms for confidentiality, prosecution and infringement provisions for licensed patents, publication rights, indemnification and
insurance coverage.&nbsp;&nbsp;The WU License Agreement is cancelable by Venaxis with ninety days advance notice at any time and
by WU with sixty days advance notice if Venaxis materially breaches the WU License Agreement and fails to cure such breach.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In July 2012, the Company entered into an Exclusive License
Agreement (the &ldquo;License Agreement&rdquo;) with a licensee (&ldquo;Licensee&rdquo;), under which the Company granted the Licensee
an exclusive royalty-bearing license to the Company&rsquo;s intellectual property and other assets, including patent rights and
know-how, relating to recombinant single chain reproductive hormone technology for use in non-human mammals (the &ldquo;Company&rsquo;s
Animal Health Assets&rdquo;).&nbsp;&nbsp;The License Agreement includes a sublicense of the technology licensed to the Company
by WU. Under the terms of the WU License Agreement, a portion of license fees and royalties Venaxis receives from&nbsp;sublicensing
agreements will be paid to WU. The obligation for such license fees due to WU is included in accrued expenses at December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under the License Agreement, the Licensee obtained a worldwide
exclusive license to develop, seek regulatory approval for and offer to sell, market, distribute, import and export luteinizing
hormone (&ldquo;LH&rdquo;) and/or follicle-stimulating hormone (&ldquo;FSH&rdquo;) products for bovine (cattle), equine and swine
in the field of the assistance and facilitation of reproduction in bovine, equine and swine animals.&nbsp;&nbsp;The Company also
granted the Licensee an option and right of first refusal to develop additional animal health products outside of the licensed
field of use or any diagnostic pregnancy detection tests for non-human mammals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under the License Agreement as of December 31, 2012, the following
future license fees and milestone payments are provided, assuming future milestones are successfully achieved:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>License fees of $408,000<B>&nbsp;</B>payable in quarterly installments of $204,000;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Milestone payments, totaling up to a potential of $1.1 million in the aggregate, based on the satisfactory conclusion of milestones
as defined in the License Agreement;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Potential for milestone payments of up to an additional $2 million for development and receipt of regulatory approval for additional
licensed products; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 76.5pt"></TD><TD STYLE="width: 40.5pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>Royalties, at low double digit rates, based on sales of licensed products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Revenue recognition related to the License Agreement and WU
Agreement is based primarily on the Company&rsquo;s consideration of ASC 808-10-45, &ldquo;<I>Accounting for Collaborative Arrangements</I>&rdquo;.&nbsp;&nbsp;For
financial reporting purposes, the license fees and milestone payments received from the License Agreement, net of the amounts due
to third parties, including WU, have been recorded as deferred revenue and are amortized over the term of the License Agreement.&nbsp;&nbsp;License
fees and milestone revenue totaling a net of approximately $1,182,000 commenced being amortized into income upon the July 2012
date of milestone achievement. As of December 31, 2012, deferred revenue of $79,803 has been classified as a current liability
and $1,081,706 has been classified as a long-term liability. The current liability includes the next twelve months&rsquo; portion
of the amortizable milestone revenue.&nbsp;&nbsp;During the year ended December 31, 2012, $20,571 was recorded as the amortized
license fee revenue arising from the License Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">A tabular summary of the revenue categories and amounts of revenue
recognition associated with the License Agreement follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: rgb(70,83,97); text-align: center">Category</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); text-align: center">Totals</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 80%; color: rgb(70,83,97); text-align: left">License fees and milestone amounts paid / achieved</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 17%; color: rgb(70,83,97); text-align: right">1,512,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Third party obligations recorded, including WU</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(329,920</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Deferred revenue balance</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,182,080</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">Revenue amortization to December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(20,571</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 2.5pt">Net deferred revenue balance at December 31, 2012</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">1,161,509</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 88%; border-collapse: collapse; margin-left: 0.75in">
<TR>
    <TD NOWRAP STYLE="vertical-align: top; width: 50%"><FONT STYLE="color: #465361">Category</FONT></TD>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 50%; text-align: right"><FONT STYLE="color: #465361">Totals</FONT></TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: top"><FONT STYLE="color: #465361">Commencement of license fees revenue recognition</FONT></TD>
    <TD NOWRAP STYLE="vertical-align: bottom; text-align: right"><FONT STYLE="color: #465361">Upon signing or receipt</FONT></TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: top"><FONT STYLE="color: #465361">Commencement of milestone revenue recognition</FONT></TD>
    <TD NOWRAP STYLE="vertical-align: bottom; text-align: right"><FONT STYLE="color: #465361">Upon milestone achievement over then remaining life</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: #465361">Original amortization period</FONT></TD>
    <TD NOWRAP STYLE="text-align: right"><FONT STYLE="color: #465361">197 months</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The animal health technology, licensed from WU in 2004 was sub-licensed
in 2008 to Novartis Animal Health (&ldquo;Novartis&rdquo;) under a long-term world-wide development and marketing agreement. In
November 2011, the Company entered into a Termination Agreement with Novartis Animal Health, Inc. (the &ldquo;Novartis Termination
Agreement&rdquo;) to terminate the Novartis License Agreement.&nbsp;&nbsp;Under the Novartis Termination Agreement, the original
termination obligation totaled $1,374,000, which was payable $150,000 upon signing the Novartis Termination Agreement and six equal
subsequent quarterly installments of $204,000 each.&nbsp;&nbsp;At December 31, 2012, the remaining outstanding termination obligation
totaled $397,588 which is due in 2013. Between 2008 and 2011, the Company received up-front license fees which were recorded, net
of the amounts due to WU, in accordance with ASC 808. The non-refundable net amount of $810,000 was being amortized to license
fee revenue over the 152 month original license period. &nbsp;During the years ended December 31, 2011 and 2010, $62,179 and $68,394,
respectively, was recorded as the amortized license fee revenue arising from the Novartis License Agreement.&nbsp;&nbsp;Upon execution
of the Termination Agreement with Novartis, the Company recorded a gain of $938,896, arising from the elimination of both the $900,000
in remaining deferred revenue and the net accounts payable to Novartis the total of which exceeded the net settlement obligation
to Novartis.&nbsp;&nbsp;As of the date of termination, future amortization of the deferred revenue was terminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 8.&nbsp;&nbsp;Other income:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In 2010, the Company received $244,479 from the U.S. Department
of Treasury under the qualifying therapeutic discovery project under Section 48D of the Internal Revenue Code which is included
in other income for the year ended December 31, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 9.&nbsp;&nbsp;Income taxes:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Income taxes at the federal statutory rate are reconciled to
the Company&rsquo;s actual income taxes as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; color: rgb(70,83,97); text-align: left">Federal income tax benefit at 34%</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(3,132,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(3,473,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">(4,535,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left">State income tax net of federal tax effect</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(276,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(306,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(400,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Permanent items</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">339,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">504,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">881,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Other</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">121,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Valuation allowance</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">2,948,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">3,275,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">4,054,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As of December 31, 2012, the Company has net operating loss
carry forwards of approximately $68 million for federal and state tax purposes, which are available to offset future taxable income,
if any, expiring through December 2032. A valuation allowance was recorded at December 31, 2012 due to the uncertainty of realization
of deferred tax assets in the future.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: rgb(70,83,97); font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Deferred tax assets (liabilities):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; color: rgb(70,83,97); text-align: left; padding-left: 9pt">Net operating loss carry forwards</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">25,100,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">22,767,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Property and equipment</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">32,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">8,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Patents and other intangible assets</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">17,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">23,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">Other</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">15,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Deferred revenue</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">551,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt; padding-left: 9pt">Research and development&nbsp;credit</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">753,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">692,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left">Deferred tax asset</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">26,453,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); text-align: right">23,505,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-bottom: 1pt">Valuation allowance</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(26,453,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: rgb(70,83,97); text-align: right">(23,505,000</TD><TD STYLE="padding-bottom: 1pt; color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97); padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: rgb(70,83,97); text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 10.&nbsp;&nbsp;Commitments and contingencies:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Commitments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Employment commitments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As of December 31, 2012, the Company has employment agreements
with three officers providing aggregate annual minimum commitments totaling&nbsp;$780,000.&nbsp;&nbsp;The agreements automatically
renew at the end of each year unless terminated by either party and contain customary confidentiality and benefit provisions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Contingencies:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On September 1, 2010, the Company received a complaint, captioned
Mark Chipman v. AspenBio Pharma, Inc. (now Venaxis, Inc.), Case No. 2:10-cv-06537-GW-JC (&ldquo;Chipman Suit&rdquo;).&nbsp;&nbsp;The
complaint was filed in the U.S. District Court in the Central District of California by an individual investor.&nbsp;&nbsp;The
complaint included allegations of fraud, negligent misrepresentation, violations of Section 10(b) of the Exchange Act and SEC Rule
10b-5, and violations of Sections 25400 and 25500 of the California Corporations Code, all related to the Company&rsquo;s blood-based
acute appendicitis test in development.&nbsp;&nbsp;On the Company&rsquo;s motion, the action was transferred to the U.S. District
Court for the District of Colorado by order dated January 21, 2011.&nbsp;&nbsp;The action was assigned a District of Colorado Civil
Case No. 11-cv-00163-REB-KMT.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On October 7, 2011, the Company filed a motion to dismiss the
complaint. On September 17, 2012, the United States District Court for Colorado granted the Company&rsquo;s motion to dismiss,
dismissing the plaintiff&rsquo;s claims against the Company without prejudice.&nbsp;&nbsp;On the same day, the court also entered
final judgment without prejudice in favor of the Company and against the plaintiff in the Chipman Suit. The plaintiff in the Chipman
Suit did not file a Notice of Appeal.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On October 1, 2010, the Company received a complaint, captioned
John Wolfe, individually and on behalf of all others similarly situated v. AspenBio Pharma, Inc. (now Venaxis, Inc.)&nbsp;&nbsp;et
al., Case No. CV10 7365 (&ldquo;Wolfe Suit&rdquo;).&nbsp;&nbsp;This federal securities purported class action was filed in the
U.S. District Court in the Central District of California on behalf of all persons, other than the defendants, who purchased common
stock of the Company during the period between February 22, 2007 and July 19, 2010, inclusive.&nbsp;&nbsp;The complaint named as
defendants certain officers and directors of the Company during such period.&nbsp;&nbsp;The complaint included allegations of violations
of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against all defendants, and of Section 20(a) of the Exchange Act against
the individual defendants, all related to the Company&rsquo;s blood-based acute appendicitis test in development known as <I>APPY1</I>.&nbsp;&nbsp;On
the Company&rsquo;s motion, this action was also transferred to the U.S. District Court for the District of Colorado by order dated
January 21, 2011.&nbsp;&nbsp;The action has been assigned a District of Colorado Civil Case No. 11-cv-00165-REB-KMT.&nbsp;&nbsp;On
July 11, 2011, the court appointed a lead plaintiff and approved lead counsel.&nbsp;&nbsp;On August 23, 2011, the lead plaintiff
filed an amended putative class action complaint, alleging the same class period.&nbsp;&nbsp;Based on a review of the amended complaint,
the Company and the individual defendants believe that the plaintiffs&rsquo; allegations are without merit, have vigorously defended
against these claims, and intend to continue to do so.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0">On October 7, 2011, the Company filed
a motion to dismiss the amended complaint, and the plaintiff&rsquo;s response and the Company&rsquo;s reply thereto were subsequently
filed.&nbsp;On September 13, 2012, the United States District Court for Colorado granted the Company&rsquo;s motion to dismiss,
dismissing the plaintiffs&rsquo; claims against all defendants without prejudice.&nbsp;&nbsp;On September 14, 2012, the court entered
Final Judgment without prejudice on behalf of all defendants and against all plaintiffs in the Wolfe Suit.&nbsp;&nbsp;The Order
to dismiss the action found in favor of the company and all of the individual defendants.&nbsp;&nbsp;On October 12, 2012, the plaintiffs
filed a Notice of Appeal of the Order granting the motion to dismiss and of the Final Judgment in the Wolfe Suit.&nbsp;&nbsp;The
plaintiffs filed their opening brief with the Tenth Circuit Court of Appeals on March 1, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On January 4, 2011, a plaintiff filed a complaint in the U.S.
District Court for the District of Colorado captioned Frank Trpisovsky v. Pusey, et al, Civil Action No. 11-cv-00023-PAB-BNB, that
purports to be a shareholder derivative action on behalf of the Company against thirteen individual current or former officers
and directors.&nbsp;&nbsp;The complaint also names the Company as a nominal defendant.&nbsp;&nbsp;The plaintiff asserts violations
of Section 14(a) of the Exchange Act, SEC Rule 14a-9, breach of fiduciary duty, waste of corporate assets, and unjust enrichment.&nbsp;&nbsp;On
motion of the Company and the individual defendants, the U.S. District Court has stayed this derivative action by order dated March
15, 2011, and this action continues to be stayed.&nbsp;&nbsp;On October 18, 2012, the parties filed a Joint Status Report, reporting
on updates in the Chipman Suit and the Wolfe Suit and stating that the stay should remain in place at this time and that a further
status report should be submitted after appeals in the Wolfe Suit have been resolved.&nbsp;&nbsp;On October 25, 2012, the magistrate
judge issued a recommendation that the case be administratively closed, subject to reopening for good cause.&nbsp;&nbsp;The U.S.
District Court on November 14, 2012, accepted the recommendation and ordered this action administratively closed, subject to reopening
for good cause.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In the ordinary course of business and in the general industry
in which the Company is engaged, it is not atypical to periodically receive a third party communication which may be in the form
of a notice, threat, or &lsquo;cease and desist&rsquo; letter concerning certain activities.&nbsp;&nbsp;For example, this can occur
in the context of the Company&rsquo;s pursuit of intellectual property rights.&nbsp;&nbsp;This can also occur in the context of
operations such as the using, making, having made, selling, and offering to sell products and services, and in other contexts.&nbsp;&nbsp;The
Company makes rational assessment of each situation on a case-by-case basis as such may arise.&nbsp;&nbsp;The Company periodically
evaluates its options for trademark positions and considers a full spectrum of alternatives for trademark protection and product
branding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 11.&nbsp;&nbsp;Supplemental data:&nbsp;&nbsp;Selected
quarterly financial information (unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">March 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">September&nbsp;30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD><TD NOWRAP STYLE="color: rgb(70,83,97); padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: rgb(70,83,97); text-align: center; border-bottom: Black 1pt solid">December 31,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: rgb(70,83,97)">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97)">Fiscal 2012 quarters ended:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 48%; color: rgb(70,83,97); text-align: left; padding-left: 9pt">Total revenues</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">7,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">27,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">6,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="width: 10%; color: rgb(70,83,97); text-align: right">2,000</TD><TD STYLE="width: 1%; color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Gross margin</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">7,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">27,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">6,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Net loss</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,938,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,310,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,460,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,504,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Loss per share - Basic and diluted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.20</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1.19</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(.32</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(0.87</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">Market price of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">High</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5.88</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">4.44</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.77</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.93</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">Low</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">3.90</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1.88</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">1.33</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">2.04</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97)">Fiscal 2011 quarters ended:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Total revenues</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">97,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">55,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">22,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">45,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Gross margin</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">85,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">52,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">22,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">44,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Net loss</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,806,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2,787,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(3,064,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(1,557,000</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); text-align: left; padding-left: 9pt">Loss per share - Basic and diluted</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2.10</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2.10</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(2.28</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">(0.96</TD><TD STYLE="color: rgb(70,83,97); text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">Market price of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">High</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">25.50</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">23.61</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">22.50</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">17.53</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: rgb(70,83,97); padding-left: 9pt">Low</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">16.80</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">18.60</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">14.40</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD><TD STYLE="color: rgb(70,83,97)">&nbsp;</TD>
    <TD STYLE="color: rgb(70,83,97); text-align: left">$</TD><TD STYLE="color: rgb(70,83,97); text-align: right">5.82</TD><TD STYLE="color: rgb(70,83,97); text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Balance Sheets</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31, <BR>2013 <BR>(Unaudited)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, <BR>2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Current assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left; padding-left: 9pt">Cash and cash equivalents</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2,491,838</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">10,977,974</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Short-term investments (Note 1)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,775,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,162,904</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Prepaid expenses and other current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">286,761</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">387,480</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Total current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,554,399</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,528,358</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Property and equipment, net (Note 2)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,428,789</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,484,539</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other long term assets, net (Notes 1 and 3)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,610,964</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,601,894</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">13,594,152</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">16,614,791</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: center">LIABILITIES AND STOCKHOLDERS' EQUITY</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Current liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">704,782</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">613,925</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accrued compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,695</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">452,878</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Accrued expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">452,749</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">642,055</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Notes and other obligations, current portion (Note 4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,945,383</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,290,292</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Deferred revenue, current portion (Note 7)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">84,995</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">79,803</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Total current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,219,604</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,078,953</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Notes and other obligations, less current portion (Note 4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">746,776</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">763,132</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred revenue, less current portion (Note 7)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,254,719</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,081,706</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,221,099</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,923,791</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Commitments and contingencies (Notes 7 and 8)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Stockholders' equity (Notes 5 and 6):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Common stock, no par value, 30,000,000 shares authorized;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">9,954,380 shares issued and outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">85,408,355</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">84,924,133</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(77,035,302</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(74,233,133</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Total stockholders' equity</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,373,053</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,691,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total liabilities and stockholders' equity</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">13,594,152</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">16,614,791</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Unaudited Condensed
Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Statements of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Three Months Ended March 31</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">7,275</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">184</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Gross profit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,091</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other revenue &ndash; fee (Note 7)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">18,655</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Operating expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Selling, general and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,427,955</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,204,675</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Research and development</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,411,973</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">676,618</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Total operating expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,839,928</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,881,293</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Operating loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,821,273</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,874,202</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other income (expense), net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">19,104</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(64,069</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Net loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,802,169</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,938,271</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Basic and diluted net loss per share (Note 1)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.28</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1.21</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -0.1in; padding-left: 0.1in">Basic and diluted weighted average number of shares outstanding (Note 1)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9,954,380</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,608,146</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Unaudited Condensed
Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Statements of Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Three Months Ended March 31</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash flows from operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 70%; text-align: left; padding-left: 9pt">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">(2,802,169</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">(1,938,271</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Adjustments to reconcile net loss to net cash used&nbsp;in operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 27pt">Stock-based compensation for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">484,222</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">221,996</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Depreciation and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">86,808</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">112,325</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 27pt">Impairment charges</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,950</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Amortization of license fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(18,655</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Change in:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90,857</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(121,135</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 27pt">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,028</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Prepaid expenses and other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100,719</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">109,043</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 27pt">Deferred revenue</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">196,860</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 27pt">Accrued compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(421,183</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 27pt">Accrued expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(189,306</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(188,522</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash used&nbsp;in operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,471,847</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,734,586</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash flows from investing activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">Purchases of short-term investments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,612,896</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">Sales of short-term investments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">441,346</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Purchases of property and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(10,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Purchases of patent and trademark application costs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(29,284</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(23,099</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash provided by investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5,653,024</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">418,247</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Cash flows from financing activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Repayment of notes payable and other obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(361,265</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(335,303</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash used in financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(361,265</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(335,303</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net decrease in cash and cash equivalents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(8,486,136</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,651,642</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cash and cash equivalents at beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,977,974</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,968,104</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Cash and cash equivalents at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,491,838</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,316,462</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Supplemental disclosure of cash flow information:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Cash paid during the period for interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">47,120</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">64,768</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">See Accompanying Notes to Unaudited Condensed
Financial Statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Venaxis, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Notes to Condensed Financial Statements</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>INTERIM FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">The accompanying financial statements of Venaxis, Inc. (the
&ldquo;Company,&rdquo;&nbsp; &ldquo;we,&rdquo;&nbsp;or &ldquo;Venaxis&rdquo;) have been prepared in accordance with the instructions
to quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and changes in financial position at March 31, 2013 and
for all periods presented have been made. Certain information and footnote data necessary for fair presentation of financial position
and results of operations in conformity with accounting principles generally accepted in the United States of America have been
condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the Company&rsquo;s Annual Report on Form 10-K for the year ended
December 31, 2012. The results of operations for the period ended March 31, 2013 are not necessarily an indication of operating
results for the full year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Management&rsquo;s plans and basis of presentation:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has experienced recurring losses and negative cash
flows from operations.&nbsp; At March 31, 2013, the Company had approximate balances of cash and liquid investments of $9,268,000,
working capital of $6,335,000, stockholders&rsquo; equity of $8,373,000 and an accumulated deficit of $77,035,000. To date, the
Company has in large part relied on equity financing to fund its operations.&nbsp; The Company expects to continue to incur losses
from operations for the near-term and these losses could be significant as product development, clinical and regulatory activities,
consulting expenses and other product development related expenses are incurred. The Company believes that its current working
capital position will be sufficient to meet its estimated cash needs for the remainder of 2013 and at least into 2014.&nbsp; If
the Company does not obtain additional capital, the Company would potentially be required to reduce the scope of its research and
development activities or cease operations.&nbsp; The Company continues to explore obtaining additional financing.&nbsp; The Company
is closely monitoring its cash balances, cash needs and expense levels.&nbsp;In addition, the Company&rsquo;s first mortgage which
is held by a commercial bank requires a balloon payment of approximately $1.6 million due in July, 2013. Subsequent to March 31,
2013, the Company received a loan commitment to refinance the commercial bank obligation (Note 4).&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Management&rsquo;s strategic plans include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 15.2pt"></TD><TD STYLE="width: 20.8pt">-</TD><TD STYLE="text-align: justify">continuing to advance development of the Company&rsquo;s principal product, <I>APPY1</I>;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 15.2pt"></TD><TD STYLE="width: 20.8pt">-</TD><TD STYLE="text-align: justify">pursuing additional capital raising opportunities;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 15.2pt"></TD><TD STYLE="width: 20.8pt">-</TD><TD STYLE="text-align: justify">continuing to explore prospective partnering or licensing opportunities with complementary opportunities and&nbsp;technologies;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 15.2pt"></TD><TD STYLE="width: 20.8pt">-</TD><TD STYLE="text-align: justify">continuing to monitor and implement cost control initiatives to conserve cash; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 15.2pt"></TD><TD STYLE="width: 20.8pt">-</TD><TD STYLE="text-align: justify">refinancing the portion of the mortgage payable in July 2013.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 1.&nbsp; Significant accounting policies:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Cash, cash equivalents and investments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company considers all highly liquid investments with an
original maturity of three months or less at the date of acquisition to be cash equivalents. From time to time, the Company&rsquo;s
cash account balances exceed the balances as covered by the Federal Deposit Insurance System. The Company has never suffered a
loss due to such excess balances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company invests excess cash from time to time in highly-liquid
debt and equity investments of highly-rated entities which are classified as trading securities. The purpose of the investments
is to fund research and development, product development, United States Food and Drug Administration (&ldquo;FDA&rdquo;) clearance-related
activities and general corporate purposes. Such amounts are recorded at market values using Level 1 inputs in determining fair
value and are classified as current, as the Company does not intend to hold the investments beyond twelve months. Investment securities
classified as trading are those securities that are bought and held principally for the purpose of selling them in the near term,
with the objective of preserving principal and generating profits. These securities are reported at fair value with unrealized
gains and losses reported as an element of other (expense) income in current period earnings. The Company&rsquo;s Board of Directors
has approved an investment policy covering the investment parameters to be followed with the primary goals being the safety of
principal amounts and maintaining liquidity of the fund. The policy provides for minimum investment rating requirements as well
as limitations on investment duration and concentrations. Based upon market conditions, the investment guidelines have been tightened
to increase the minimum acceptable investment ratings required for investments and shorten the maximum investment term. As of March
31, 2013, 24% of the investment portfolio was in cash and cash equivalents, which is presented as such on the accompanying balance
sheet, and the remaining funds were invested in short-term marketable securities with none individually representing more than
5% of the portfolio and none with maturities past January 2014. To date, the Company&rsquo;s cumulative realized market loss from
the investments has not been in excess of $5,000.&nbsp; For the three months ended March 31, 2013, there was approximately $38,869
in unrealized loss, no realized gain or loss, and $3,893 in management fees.&nbsp; For the three months ended March 31, 2012, there
was approximately $1,260 in unrealized income, no realized gain or loss, and $657 in management fees.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Fair value of financial instruments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for financial instruments under Financial
Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 820,<I> Fair Value Measurements</I>.&nbsp; This
statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements.&nbsp; To increase consistency and comparability in fair value measurements,
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
three levels as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Level 1&mdash; quoted prices
(unadjusted) in active markets for identical assets or liabilities;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Level 2 &mdash; observable inputs
other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value
drivers are observable; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify">Level 3 &mdash; assets and liabilities
whose significant value drivers are unobservable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Observable inputs are based on market data obtained from independent
sources, while unobservable inputs are based on the Company&rsquo;s market assumptions.&nbsp; Unobservable inputs require significant
management judgment or estimation.&nbsp; In some cases, the inputs used to measure an asset or liability may fall into different
levels of the fair value hierarchy.&nbsp; In those instances, the fair value measurement is required to be classified using the
lowest level of input that is significant to the fair value measurement.&nbsp; Such determination requires significant management
judgment. There were no financial assets or liabilities measured at fair value, with the exception of cash, cash equivalents and
short-term investments as of March 31, 2013 and December 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The carrying amounts of the Company&rsquo;s financial instruments
(other than cash, cash equivalents and short-term investments as discussed above) approximate fair value because of their variable
interest rates and / or short maturities combined with the recent historical interest rate levels.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Recently issued and adopted accounting pronouncements:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has evaluated all recently issued accounting pronouncements
and believes such pronouncements do not have a material effect on the Company&rsquo;s financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Income (loss) per share:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">ASC 260,<I> Earnings Per Share</I>, requires dual presentation
of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of the entity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic net earnings (loss) per share includes no dilution and
is computed by dividing net earnings (loss) available to shareholders by the weighted average number of common shares outstanding
for the period.&nbsp; The increase in the weighted average number of common shares outstanding in the period ended March 31, 2013,
as compared to the same 2012 period resulted from common share issuances in 2012 subsequent to March 31, 2012.&nbsp;Diluted net
earnings (loss) per share reflect the potential dilution of securities that could share in the Company&rsquo;s earnings (loss).
The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted
average shares outstanding have not been adjusted for dilutive shares. Outstanding stock options and warrants are not considered
in the calculation, as the impact of the potential common shares (totaling approximately 1,774,000 shares and 2,862,000 shares
for the three month periods ended March 31, 2013 and 2012, respectively) would be to decrease the net loss per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Upon the completion of the 2012 annual shareholders meeting
on May 22, 2012, where such action was approved by shareholders, the Board of Directors authorized a reverse stock split of the
Company&rsquo;s common stock at a ratio of one-for-six, whereby each six shares of common stock were combined into one share of
common stock (the &ldquo;Reverse Stock Split&rdquo;).&nbsp; The Reverse Stock Split was implemented and effective on June 20, 2012.
All historical references to shares and share amounts in this report have been retroactively revised to reflect the Reverse Stock
Split, the principal effects of which were to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.4pt"></TD><TD STYLE="width: 15.3pt">1.</TD><TD STYLE="text-align: justify">reduce the number of shares of common stock issued and outstanding by a factor of 6;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.7pt; text-indent: -15.3pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.4pt"></TD><TD STYLE="width: 15.3pt">2.</TD><TD STYLE="text-align: justify">increase the per share exercise price of options and warrants by a factor of 6, and decrease the number of shares issuable
upon exercise by a factor of 6, for all outstanding options and warrants entitling the holders to purchase shares of the Company&rsquo;s
common stock; and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.7pt; text-indent: -15.3pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.4pt"></TD><TD STYLE="width: 15.3pt">3.</TD><TD STYLE="text-align: justify">proportionately reduce the number of shares authorized and reserved for issuance under the Company&rsquo;s existing equity
compensation plans.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A reconciliation of basic and diluted weighted average number
of shares outstanding adjusted for the Reverse Stock Split for the three month period ended March 31, 2012 was 9,633,321 shares
on a pre-split basis and 1,608,146 shares on a post-split basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 2. Property and equipment:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Property and equipment consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31, <BR>2013 <BR>(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, <BR>2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Land and improvements</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,107,508</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,107,508</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Building</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,589,231</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,589,231</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Building improvements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">252,197</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">251,049</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Laboratory equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,212,668</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,211,418</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Office and computer equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">412,138</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">403,692</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,573,742</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,562,898</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,144,953</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,078,359</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,428,789</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,484,539</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation expense totaled approximately $67,000 and $94,000
for the three month periods ended March 31, 2013 and 2012, respectively.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 3.&nbsp; Other long-term assets:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Other long-term assets consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31, <BR>2013 <BR>(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, <BR>2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left; text-indent: -0.1in; padding-left: 0.1in">Patents, trademarks and applications, net of&nbsp;accumulated amortization of $364,479 and&nbsp;$345,692</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,221,195</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,210,698</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Goodwill</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">387,239</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">387,239</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Other</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,530</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,957</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,610,964</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,601,894</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company capitalizes legal costs and filing fees associated
with obtaining patents on its new discoveries. Once the patents have been issued, the Company amortizes these costs over the shorter
of the legal life of the patent or its estimated economic life using the straight-line method. Based upon the current status of
the above intangible assets, the aggregate amortization expense is estimated to be approximately $75,000 for each of the next five
fiscal years. The Company tests intangible assets with finite lives upon significant changes in the Company&rsquo;s business environment.
The testing resulted in no patent impairment charges during the three months ended March 31, 2013 and approximately $42,000 of
patent impairment charges during the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


<!-- Field: Page; Sequence: 102; Value: 1 -->
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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 4. Notes and Other Obligations:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Notes payable and other obligations consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">March 31, <BR>2013 <BR>(Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, <BR>2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Mortgage notes</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2,402,823</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2,435,073</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Termination obligation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,509</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">397,588</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Other short-term installment obligations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">88,827</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">220,763</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,692,159</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,053,424</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less current portion</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,945,383</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,290,292</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">746,776</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">763,132</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Mortgage notes:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has a mortgage facility on its land and building.
The mortgage is held by a commercial bank and includes approximately 35% that is guaranteed by the U. S. Small Business Administration
(SBA). The loan is collateralized by the real property and is also personally guaranteed by a former officer of the Company.&nbsp;The
interest rate on the bank portion is one percentage over the Wall Street Journal Prime Rate (minimum 7%), with 7% being the effective
rate for 2013 and 2012, and the SBA portion bears interest at the rate of 5.86%. The commercial bank portion of the loan requires
total monthly payments of approximately $14,200, which currently includes approximately $8,600 per month in contractual interest,
through July 2013 when the then remaining principal balance is due which is estimated to be approximately $1.6 million. The SBA
portion of the loan requires total monthly payments of approximately $9,200 through July 2023, which currently includes approximately
$4,100 per month in contractual interest and fees.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subsequent to March 31, 2013, the Company received a commitment
from its current lender to refinance the commercial bank portion of the mortgage. Based on the letter of commitment received the
Company&rsquo;s expectation is that the new loan will close as proposed prior to July 2013. The proposed terms include an amortization
period of fifteen years, with a balloon&nbsp;maturity at five years and the interest rate fixed at 3.95%. The expected monthly
payments will be approximately $11,700, including $5,200 in contractual interest.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Termination obligation:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November 2011, the Company entered into a Termination Agreement
with Novartis Animal Health, Inc. (the &ldquo;Novartis Termination Agreement&rdquo;) to terminate the Novartis License Agreement
(Note 7).&nbsp; Under the Novartis Termination Agreement, the termination obligation originally totaled $1,374,000, which was payable
$150,000 upon signing the Novartis Termination Agreement and in six equal subsequent quarterly installments of $204,000 each.&nbsp;
The Company discounted this obligation for financial reporting purposes&nbsp;to $1,303,000, using an assumed interest rate of 7%
(which represents the rate management believes it could have borrowed at for similar financings).&nbsp; At March 31, 2013, the
remaining outstanding termination obligation totaled approximately $201,000 which is due in June, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Future maturities:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s total debt obligations require minimum annual
principal payments of approximately $1,929,000 for the remainder of 2013, $65,000 in 2014, $68,000 in 2015, $71,000 in 2016 and
$559,000 thereafter, through the terms of the applicable debt agreements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 5. Stockholders&rsquo; equity:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March 31, 2013 and 2012, respectively,
there were no equity issuances.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Note 6. Stock options and warrants:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Stock options:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company currently provides stock-based compensation to employees,
directors and consultants, both under the Company&rsquo;s 2002 Stock Incentive Plan, as amended (the &ldquo;Plan&rdquo;), and non-qualified
options and warrants issued outside of the Plan. The Company estimates the fair value of the share-based awards on the date of
grant using the Black-Scholes option-pricing model (the &ldquo;Black-Scholes model&rdquo;).&nbsp; Using the Black-Scholes model,
the value of the award that is ultimately expected to vest is recognized over the requisite service period in the statement of
operations.&nbsp; Option forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.&nbsp; The Company attributes compensation to expense using the straight-line single option
method for all options granted.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s determination of the estimated fair value
of share-based payment awards on the date of grant is affected by the following variables and assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">The grant date exercise price &ndash; the closing market price of the Company&rsquo;s common stock
on the date of the grant;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Estimated option term &ndash; based on historical experience with existing option holders;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Estimated dividend rates &ndash; based on historical and anticipated dividends&nbsp;over the life
of the option;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Term of the option &ndash; based on historical experience, grants have lives of approximately 3-5
years;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Risk-free interest rates &ndash; with maturities that approximate the expected life of the options
granted;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Calculated stock price volatility &ndash; calculated over the expected life of the options granted,
which is calculated based on the daily closing price of the Company&rsquo;s common stock over a period equal to the expected term
of the option; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 20.55pt"></TD><TD STYLE="width: 15.45pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Option exercise behaviors &ndash; based on actual and projected employee stock option exercises
and forfeitures.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company recognized total expenses for stock-based compensation
during the three-month periods ended March 31, as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Stock options to employees and directors</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">483,625</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">197,402</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Stock options to consultants for:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Investor relations activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,227</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt"><I>APPY1</I> activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">597</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,491</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Animal health activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,876</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 2.5pt">Total stock-based compensation</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">484,222</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">221,996</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The above expenses are included in the accompanying Statements
of Operations for the periods ended March 31, in the following categories:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months Ended</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2013</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Selling, general and administrative expenses</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">483,625</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">220,505</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Research and development expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">597</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,491</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 2.5pt">Total stock-based compensation</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">484,222</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">221,996</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March 31, 2013 and 2012, respectively,
no options were exercised.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Stock incentive plan options:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company currently provides stock-based compensation to employees,
directors and consultants under the Plan.&nbsp;During the three months ended March 31, 2012, no stock options were granted under
the Plan.&nbsp;The Company utilized assumptions in the estimation of fair value of stock-based compensation for the three months
ended March 31, 2013 as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: center">2013</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 85%; text-align: left">Dividend yield</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">0</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Expected price volatility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">127-128</FONT></TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Risk free interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0.72-0.76</FONT></TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Expected term</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5 years</FONT></TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Operating expenses for the three month periods ended March 31,
2013 and 2012, include $470,000 and $193,000, respectively, for the value of the stock options issued under the Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of stock option activity under the Plan for options
to employees, officers, directors and consultants, for the three months ended March 31, 2013, is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Remaining <BR>Contractual <BR>Term (Years)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Aggregate <BR>Intrinsic <BR>Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%">Outstanding at January 1, 2013</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">707,940</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">13.98</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">474,270</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.09</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,644</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2.43</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,175,566</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9.25</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">9.05</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">85,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Exercisable at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">261,506</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">33.15</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">6.72</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">10,400</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The aggregate intrinsic value in the table above represents
the total intrinsic value (the difference between the Company&rsquo;s closing stock price on March 31, 2013 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been
able to, and in fact had, exercised their options on March 31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March 31, 2013, 474,270 options
were granted under the Plan to employees, officers,&nbsp;directors and consultants with a weighted average exercise price at grant
date of $2.09 per option.&nbsp; &nbsp;Included in the 474,270 options issued, the non-employee directors were granted a total of
168,000 options at an average exercise price of $2.19 per share of which majority vest quarterly over a one-year period, officers
were granted 292,000 options at an average exercise price of $2.04 per share vesting over a twenty-four month period and employees
were granted 14,270 options at an average exercise price of $2.04 per share which vest over a twenty-four month period following
grant. All options granted under the Company&rsquo;s 2002 Stock Incentive Plan expire ten years from the grant date.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March 31, 2013, a total of 6,644
options that were granted under the Plan to employees were forfeited, of which all were unvested.&nbsp; The options were exercisable
at an average of $2.43 per share and were forfeited upon the employees&rsquo; terminations from the Company.&nbsp; &nbsp;During
the three months ended March 31, 2012, a total of 119,721 options that were granted under the Plan to employees, including an officer,
were forfeited, 4,667 of which were vested and 115,054 were unvested.&nbsp; The options were exercisable at an average of $4.60
per share and were forfeited upon the employees&rsquo; terminations from the Company.&nbsp; &nbsp; &nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The total fair value of stock options granted to employees,
directors and consultants that vested and became exercisable during the three months ended March 31, 2013 and 2012, was $532,000
and $1,142,000, respectively.&nbsp; &nbsp;Based upon the Company&rsquo;s experience, approximately 85% of the outstanding nonvested
stock options, or approximately 777,000 options, are expected to vest in the future, under their terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the activity of nonvested options under the Plan
to acquire common shares granted to employees, officers, directors and consultants during the three months ended March 31, 2013
is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested Shares</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested <BR>Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Grant Date <BR>Fair Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%">Nonvested at January 1, 2013</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">508,435</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">3.70</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">3.07</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">474,270</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.09</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.78</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Vested</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(62,001</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.58</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,644</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2.43</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2.04</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Nonvested at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">914,060</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">2.41</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">2.03</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2013, based upon employee, officer, director and
consultant options granted under the Plan to that point, there was approximately $1,150,000 of additional unrecognized compensation
cost related to stock options that will be recorded over a weighted average future period of approximately one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subsequent to March 31, 2013, a total of 10,000 stock options
were granted to a newly hired employee exercisable at the then fair market value of $1.99, per share, vesting over a three year
period annually in arrears. Additionally, effective as of May 1, 2013, in connection with the appointment of a new non-employee
director, 41,333 stock options were granted, exercisable at the then fair market value of $1.75 per share, and vesting over a three-year
period in arrears of the date of the grant for 24,000 of the options and in three equal installments on May 1, July 1 and October
1, 2013, respectively, for the remaining 17,333 options.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Other common stock purchase options and warrants:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of March 31, 2013, in addition to the stock incentive plan
options discussed above, the Company had outstanding 598,006 non-qualified options and warrants in connection with offering warrants,
officers&rsquo; employment and investor relations consulting that were not issued under the Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three month periods ended March 31, 2013 and 2012,
respectively, no stock options were granted outside of the Plan.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Operating expenses for the three months ended March 31, 2013
and 2012, include approximately $14,000 and $29,000, respectively, for the value of the non-qualified options and warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Following is a summary of outstanding options and warrants that
were issued outside of the Plan for the three months ended March 31, 2013:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares <BR>Underlying <BR>Options / Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Remaining <BR>Contractual <BR>Term (Years)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Aggregate <BR>Intrinsic <BR>Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%">Outstanding at January 1, 2013</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">598,507</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">5.01</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(501</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">54.00</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Outstanding at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">598,006</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4.97</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">4.37</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Exercisable at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">289,673</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">7.59</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">4.47</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">&mdash;</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The aggregate intrinsic value in the table
above represents the total intrinsic value (the difference between the Company&rsquo;s closing stock price on March 31, 2013 and
the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had
all option holders been able to, and in fact had, exercised their options on March 31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In June 2012, the Company completed a $12.2 million public offering
of securities and in connection with that offering, granted the underwriter warrants to purchase a total of 305,000 shares of common
stock.&nbsp; These warrants which are included in the above table are not exercisable until June 2013 at an exercise price of $2.50
per share, and expire in June 2017.&nbsp; Included at March 31, 2013 in the 598,006 total outstanding options and warrants are
572,505 non-compensatory rights granted in connection with public offerings and 25,501 rights issued under compensatory arrangements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The total fair value of stock options previously granted to
an investor relations consulting firm and to certain officers that vested and became exercisable during the three months ended
March 31, 2013 and 2012, was $14,178 and $56,033, respectively.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the activity of nonvested, non-qualified options
and warrants granted outside of the Plan in connection with employment and investor relations consulting services during the three
months ended March 31, 2013, is presented below:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested Shares</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nonvested <BR>Shares <BR>Underlying <BR>Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Grant Date <BR>Fair Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%">Nonvested at January 1, 2013</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">8,332</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">3.42</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">2.84</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Vested</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.42</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.84</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 9pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Nonvested at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">3,332</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">3.42</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">2.84</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2013, there was approximately $8,000 in unrecognized
cost for non-qualified options that will be recorded over a weighted average future period of less than one year.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note 7.&nbsp; Animal Health License Agreements:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective May 1, 2004 Washington University in St. Louis (WU)
and Venaxis entered into an Exclusive License Agreement (WU License Agreement) which grants Venaxis exclusive license and right
to sublicense WU&rsquo;s technology (as defined under the WU License Agreement) for veterinary products worldwide, except where
such products are prohibited under U.S. laws for export. The term of the WU License Agreement continues until the expiration of
the last of WU&rsquo;s patents (as defined in the WU License Agreement).&nbsp; Venaxis has agreed to pay minimum annual royalties
of $20,000 annually during the term of the WU License Agreement and such amounts are creditable against future royalties.&nbsp;
Royalties payable to WU under the WU License Agreement for covered product sales by Venaxis carry a mid-single digit royalty rate
and for sublicense fees received by Venaxis&nbsp;carry a low double-digit royalty rate.&nbsp; The WU License Agreement contains
customary terms for confidentiality, prosecution and infringement provisions for licensed patents, publication rights, indemnification
and insurance coverage.&nbsp; The WU License Agreement is cancelable by Venaxis with ninety days advance notice at any time and
by WU with sixty days advance notice if Venaxis materially breaches the WU License Agreement and fails to cure such breach.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In July 2012, the Company entered into an Exclusive License
Agreement (the &ldquo;License Agreement&rdquo;) with a licensee (&ldquo;Licensee&rdquo;), under which the Company granted the Licensee
an exclusive royalty-bearing license to the Company&rsquo;s intellectual property and other assets, including patent rights and
know-how, relating to recombinant single chain reproductive hormone technology for use in non-human mammals (the &ldquo;Company&rsquo;s
Animal Health Assets&rdquo;).&nbsp; The License Agreement includes a sublicense of the technology licensed to the Company by WU.
Under the terms of the WU License Agreement, a portion of license fees and royalties Venaxis receives from&nbsp;sublicensing agreements
will be paid to WU. The obligation for such license fees due to WU is included in accrued expenses at March 31, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the License Agreement, the Licensee obtained a worldwide
exclusive license to develop, seek regulatory approval for and offer to sell, market, distribute, import and export luteinizing
hormone (&ldquo;LH&rdquo;) and/or follicle-stimulating hormone (&ldquo;FSH&rdquo;) products for bovine (cattle), equine and swine
in the field of the assistance and facilitation of reproduction in bovine, equine and swine animals.&nbsp; The Company also granted
the Licensee an option and right of first refusal to develop additional animal health products outside of the licensed field of
use or any diagnostic pregnancy detection tests for non-human mammals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under the License Agreement as of March 31, 2013, the following
future license fees and milestone payments are provided, assuming future milestones are successfully achieved:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0; text-align: justify"></TD><TD STYLE="width: 0.5in; text-align: justify"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">License fees of $204,000<B>&nbsp;</B>payable in June 2013;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0; text-align: justify"></TD><TD STYLE="width: 0.5in; text-align: justify"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Milestone payments, totaling up to a potential of $1.1 million in the aggregate, based on the satisfactory conclusion of milestones
as defined in the License Agreement;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0; text-align: justify"></TD><TD STYLE="width: 0.5in; text-align: justify"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Potential for milestone payments of up to an additional $2 million for development and receipt of regulatory approval for additional
licensed products; and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0; text-align: justify"></TD><TD STYLE="width: 0.5in; text-align: justify"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">Royalties, at low double digit rates, based on sales of licensed products.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Revenue recognition related to the License Agreement and WU
License Agreement is based primarily on the Company&rsquo;s consideration of ASC 808-10-45, &ldquo;<I>Accounting for Collaborative
Arrangements</I>&rdquo;.&nbsp; For financial reporting purposes, the license fees and milestone payments received from the License
Agreement, net of the amounts due to third parties, including WU, have been recorded as deferred revenue and are amortized over
the term of the License Agreement.&nbsp; License fees and milestone revenue totaling a net of approximately $1,182,000 commenced
being amortized into income upon the July 2012 date of milestone achievement. As of March 31, 2013, deferred revenue of $84,995
has been classified as a current liability and $1,254,719 has been classified as a long-term liability. The current liability includes
the next twelve months&rsquo; portion of the amortizable milestone revenue.&nbsp; &nbsp;During the three months ended March 31,
2013, $18,655 was recorded as the amortized license fee revenue arising from the License Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A tabular summary of the revenue categories and amounts of revenue
recognition associated with the License Agreement follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; color: rgb(70,83,97)">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center; padding-bottom: 1pt">Category</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid">Totals</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 85%; text-align: left">License fees and milestone amounts received / achieved</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,716,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Third party obligations recorded, including WU</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(337,060</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred revenue balance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,378,940</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Revenue amortization to March 31, 2013</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(39,226</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net deferred revenue balance at March 31, 2013</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">1,339,714</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 85%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%"><FONT STYLE="font-size: 10pt">Commencement of license fees revenue recognition</FONT></TD>
    <TD STYLE="width: 50%; text-align: right"><FONT STYLE="font-size: 10pt">Upon signing or receipt</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">Commencement of milestone revenue recognition</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">Upon milestone achievement over then remaining life</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">Original amortization period</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">197 months</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The animal health technology licensed from WU in 2004 was sub-licensed
in 2008 to Novartis Animal Health (&ldquo;Novartis&rdquo;) under a long-term world-wide development and marketing agreement. In
November 2011, the Company entered into a Termination Agreement with Novartis Animal Health, Inc. (the &ldquo;Novartis Termination
Agreement&rdquo;) to terminate the Novartis License Agreement.&nbsp; Under the Novartis Termination Agreement, the original termination
obligation totaled $1,374,000, which was payable $150,000 upon signing the Novartis Termination Agreement and six equal subsequent
quarterly installments of $204,000 each.&nbsp; At March 31, 2013, the remaining outstanding termination obligation totaled $200,509
which is due in 2013. Between 2008 and 2011, the Company received up-front license fees which were recorded, net of the amounts
due to WU, in accordance with ASC 808. Prior to the Novartis Termination Agreement the non-refundable net amount of $810,000 was
being amortized to license fee revenue over the 152 month original license period. Upon execution of the Termination Agreement
with Novartis, the Company recorded a gain of $938,896, arising from the elimination of both the $900,000 in remaining deferred
revenue and the net accounts payable to Novartis the total of which exceeded the net settlement obligation to Novartis.&nbsp; As
of the date of termination, future amortization of the deferred revenue was terminated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Note 8.&nbsp; Commitments and contingencies:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Employment commitments:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of March 31, 2013, the Company has employment agreements
with three officers providing aggregate annual minimum commitments totaling&nbsp;$780,000.&nbsp; The agreements automatically renew
at the end of each year unless terminated by either party and contain customary confidentiality and benefit provisions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Contingencies:&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 1, 2010, the Company received a complaint, captioned
John Wolfe, individually and on behalf of all others similarly situated v. AspenBio Pharma, Inc. (now Venaxis, Inc.)&nbsp; et al.,
Case No. CV10 7365 (&ldquo;Wolfe Suit&rdquo;).&nbsp; This federal securities purported class action was filed in the U.S. District
Court in the Central District of California on behalf of all persons, other than the defendants, who purchased common stock of
the Company during the period between February&nbsp;22, 2007 and July 19, 2010, inclusive.&nbsp; The complaint named as defendants
certain officers and directors of the Company during such period.&nbsp; The complaint included allegations of violations of Section
10(b) of the Exchange Act and SEC Rule 10b-5 against all defendants, and of Section 20(a) of the Exchange Act against the individual
defendants, all related to the Company&rsquo;s blood-based acute appendicitis test in development.&nbsp; On the Company&rsquo;s
motion, this action was also transferred to the U.S. District Court for the District of Colorado by order dated January 21, 2011.&nbsp;
The action was assigned a District of Colorado Civil Case No. 11-cv-00165-REB-KMT.&nbsp; On July 11, 2011, the court appointed
a lead plaintiff and approved lead counsel.&nbsp; On August 23, 2011, the lead plaintiff filed an amended putative class action
complaint.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On October 7, 2011, the Company filed a motion to dismiss the
amended complaint. On September 13, 2012, the United States District Court for Colorado granted the Company&rsquo;s motion to dismiss,
dismissing the plaintiffs&rsquo; claims against all defendants without prejudice.&nbsp; On September 14, 2012, the court entered
Final Judgment without prejudice on behalf of all defendants and against all plaintiffs in the Wolfe Suit.&nbsp; The Order to dismiss
the action found in favor of the company and all of the individual defendants.&nbsp; On October 12, 2012, the plaintiffs filed
a Notice of Appeal of the Order granting the motion to dismiss and of the Final Judgment in the Wolfe Suit.&nbsp; The plaintiffs
filed their opening brief with the Tenth Circuit Court of Appeals on March 1, 2013.&nbsp; The Company filed its answering brief
with the Tenth Circuit Court of Appeals on April 8, 2013.&nbsp; The Company and the individual defendants believe that the plaintiffs&rsquo;
allegations are without merit, have vigorously defended against these claims, and intend to continue to do so.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 4, 2011, a plaintiff filed a complaint in the U.S.
District Court for the District of Colorado captioned Frank Trpisovsky v. Pusey, et al, Civil Action No. 11-cv-00023-PAB-BNB, that
purports to be a shareholder derivative action on behalf of the Company against thirteen individual current or former officers
and directors.&nbsp; The complaint also names the Company as a nominal defendant.&nbsp; The plaintiff asserts violations of Section
14(a) of the Exchange Act, SEC Rule 14a-9, breach of fiduciary duty, waste of corporate assets, and unjust enrichment.&nbsp; On
motion of the Company and the individual defendants, the U.S. District Court has stayed this derivative action by order dated March
15, 2011.&nbsp; On October 18, 2012, the parties filed a Joint Status Report, reporting on updates in the Wolfe Suit and stating
that the stay should remain in place at this time and that a further status report should be submitted after the appeal in the
Wolfe Suit has been resolved.&nbsp; On October 25, 2012, the magistrate judge issued a recommendation that the case be administratively
closed, subject to reopening for good cause.&nbsp; The U.S. District Court on November 14, 2012, accepted the recommendation and
ordered this action administratively closed, subject to reopening for good cause.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the ordinary course of business and in the general industry
in which the Company is engaged, it is not atypical to periodically receive a third party communication which may be in the form
of a notice, threat, or &lsquo;cease and desist&rsquo; letter concerning certain activities.&nbsp; For example, this can occur
in the context of the Company&rsquo;s pursuit of intellectual property rights.&nbsp; This can also occur in the context of operations
such as the using, making, having made, selling, and offering to sell products and services, and in other contexts.&nbsp; The Company
makes rational assessment of each situation on a case-by-case basis as such may arise.&nbsp; The Company periodically evaluates
its options for trademark positions and considers a full spectrum of alternatives for trademark protection and product branding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are not a party to any other legal proceedings,
the adverse outcome of which would, in our management's opinion, have a material adverse effect on our business, financial condition
and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>



<P STYLE="margin: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in"><B>Shares</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>VENAXIS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Common Stock</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Piper Jaffray</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2013</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>Part II</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>INFORMATION NOT REQUIRED IN PROSPECTUS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Item 13.&nbsp;&nbsp;Other Expenses of Issuance and Distribution</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The following table lists the costs and expenses payable by
the Company in connection with the sale of the common stock covered by this prospectus other than any sales commissions or discounts.&nbsp;&nbsp;All
amounts shown are estimates except for the SEC registration fee, NASDAQ listing fee and FINRA fee and all of the fees and expenses
will be borne by the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.75in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%; text-align: left">SEC registration fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">3,137</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">NASDAQ listing fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">FINRA fee</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Legal fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Printing, transfer agent and miscellaneous expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</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: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.5in; text-align: left">*</TD><TD STYLE="text-align: justify">To be filed by amendment.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Item 14.&nbsp;&nbsp;Indemnification of Directors and Officers</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Our Articles of Incorporation and Bylaws require us to indemnify
our officers, directors, employees and agents against reasonably incurred expenses (including legal fees), judgments, penalties,
fines and amounts incurred in the settlement of any action, suit or proceeding if it is determined that such person conducted himself
in good faith and that he reasonably believed (i) in the case of conduct in his official capacity, that his conduct was in the
Company&rsquo;s best interest, (ii) in all other cases (except criminal proceedings) that his conduct was at least not opposed
to the Company&rsquo;s best interests, or (iii) in the case of any criminal proceeding, that he has not reasonable cause to believe
that his conduct was unlawful.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">This determination shall be made by a majority vote of directors
at a meeting at which a quorum is present, provided however that the quorum can only consist of directors not parties to the proceeding.&nbsp;&nbsp;If
a quorum cannot be obtained, the determination may be made by a majority vote of a committee of the board, consisting of two or
more directors who are not parties to the proceeding.&nbsp;&nbsp;Directors who are parties to the proceeding may participate in
the designation of members to serve on the committee.&nbsp;&nbsp;If a quorum of the board or a committee cannot be established,
the determination may be made (i) by independent legal counsel selected by a vote of the board of directors or committee in the
manner described in this paragraph or, if a quorum cannot be obtained or a committee cannot be established, by independent legal
counsel selected by a majority of the full board (including directors who are parties to the proceeding) or (ii) by a vote of the
shareholders.&nbsp;&nbsp;Any officer, director, employee or agent may seek court-ordered indemnification from the court conducting
the proceeding.&nbsp;&nbsp;The court may then determine whether such person should be entitled to indemnification.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons of us pursuant to the foregoing provisions, or otherwise,
we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.&nbsp;&nbsp;In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Company is
against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Section 7&minus;108&minus;402 of the Colorado Business Corporation
Act (the &ldquo;Act&rdquo;) provides, generally, that the articles of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as
a director, except that any such provision shall not eliminate or limit the liability of a director (i) for any breach of the director&rsquo;s
duty of loyalty to the corporation or its shareholders, (ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) acts specified in Section 7&minus;108&minus;403 of the Act&nbsp;(unlawful distributions),
or (iv) any transaction from which&nbsp;the&nbsp;director directly or indirectly derived an improper personal benefit. Such provision
may not eliminate or limit the liability of a director for any act or omission occurring prior to the date on which such provision
becomes effective.&nbsp;&nbsp;The Company&rsquo;s articles of incorporation contain such a provision.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Section 7&minus;109&minus;103 of the Act provides, that a corporation
organized under Colorado law shall be required to indemnify a person who is or was a director of the corporation or an individual
who, while serving as a director of the corporation, is or was serving at the corporation&rsquo;s request as a director, an officer,
an agent, an associate, an employee, a fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to hold any similar
position with, another domestic or foreign corporation or other person or of an employee benefit plan (a &ldquo;Director&rdquo;)
of the corporation and who was wholly successful, on the merits or otherwise, in the defense of any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal (a &ldquo;Proceeding&rdquo;),
in which he was a party, against reasonable expenses incurred by him in connection with the Proceeding, unless such indemnity is
limited by the corporation&rsquo;s articles of incorporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Section 7&minus;109&minus;102 of the Act provides, generally,
that a corporation may indemnify a person made a party to a Proceeding because the person is or was a Director against any obligation
incurred with respect to a Proceeding to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect
to an employee benefit plan) or reasonable expenses incurred in the Proceeding if the person conducted himself or herself in good
faith and the person reasonably believed, in the case of conduct in an official capacity with the corporation, the person&rsquo;s
conduct was in the corporation&rsquo;s best interests and, in all other cases, his or her conduct was at least not opposed to the
corporation&rsquo;s best interests and, with respect to any criminal proceedings, the person had no reasonable cause to believe
that his or her conduct was unlawful.&nbsp;&nbsp;A corporation may not indemnify a Director in connection with any Proceeding by
or in the right of the corporation in which the Director was adjudged liable to the corporation or, in connection with any other
Proceeding charging that the Director derived an improper personal benefit, whether or not involving actions in an official capacity,
in which Proceeding the Director was judged liable on the basis that he or she derived an improper personal benefit.&nbsp;&nbsp;Any
indemnification permitted in connection with a Proceeding by or in the right of the corporation is limited to reasonable expenses
incurred in connection with such Proceeding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">Under Section 7&minus;109&minus;107 of the Act, unless otherwise
provided in the articles of incorporation, a corporation may indemnify an officer, employee, fiduciary, or agent of the corporation
to the same extent as a Director and may indemnify an officer, employee, fiduciary, or agent who is not a Director to a greater
extent, if not inconsistent with public policy and if provided for by its bylaws, general or specific action of its board of directors
or shareholders, or contract.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Item 15.&nbsp;&nbsp;Recent Sales of Unregistered Securities</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">On each of April 2, 2012 and June 1, 2012, 4,167 shares of restricted
common stock were granted to a consultant in consideration for investor relations services. These shares of common stock vested
upon grant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">As incentive compensation, the Company awarded Donald Hurd,
Senior Vice President and Chief Commercial Officer, non-qualified stock options to acquire 120,000 shares of Company common stock
exercisable at $0.57, the fair market value of the Company&rsquo;s common stock on May 23, 2012, the &ldquo;Grant Date&rdquo;.
The options grant, which is an employment-inducement grant made outside of the Company&rsquo;s 2002 Stock Incentive Plan, as amended,
has the following additional material terms: the stock options shall vest as to 50% of the total at the six-month anniversary of
the Grant Date, and the balance shall vest one-twelfth monthly over months seven through twelve following the Grant Date. Any stock
options granted that are then unvested, shall vest upon the consummation of a &ldquo;Change in Control&rdquo; of AspenBio, using
the same definition as contained in the Company&rsquo;s 2002 Stock Incentive Plan, as amended. The options are exercisable for
a period of ten (10) years after the Grant Date, subject to earlier termination on cessation of service with the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">In June 2012, in connection with its public offering, the Company
issued warrants to purchase 305,000 shares of common stock to Aegis Capital Corp., the underwriter in the public offering. The
warrants were immediately exercisable, have an exercise price equal to $2.50 per share, and expire on June 19, 2017.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2011, the Company hired a
Vice President of Marketing and Business who previously had a consulting relationship with the Company. As part of the employment
arrangement, the Board of Directors approved an employment-inducement grant made outside of the Company&rsquo;s 2002 Stock Incentive
Plan, and he was granted 6,667 options for services exercisable at $19.50 per share. The options vest equally over a three year
period on the first, second and third anniversary of the grant date and expire in ten years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">During the year ended December 31, 2011, an investor relations
firm was granted warrants to purchase 5,000 shares of common stock which vest at 416 shares per month over the twelve months from
the date of grant, are exercisable at $30.00 per share and expire three years from the date of grant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">The Company relied on the exemption under section 4(2) of the
Securities Act for the above issuances because the Company: (i) did not engage in any public advertising or general solicitation
in connection with the warrant issuance; (ii) made available to the recipient disclosure regarding all aspects of our business
including our reports filed with the SEC and our press releases, and other financial, business, and corporate information; and
(iii) believed that the recipient obtained all information regarding the Company requested (or believed appropriate) and received
answers to all questions posed by the recipient, and otherwise understood the risks of accepting our securities for investment
purposes. No commission or other remuneration was paid on these issuances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Item 16.&nbsp;&nbsp;Exhibits and Financial Statement Schedules</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The following exhibits are filed as part
of, or incorporated by reference into this registration statement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR>
    <TD STYLE="vertical-align: bottom; width: 12%; border-bottom: Black 1pt solid"><B>Exhibit</B><BR>
<B>Number</B></TD>
    <TD STYLE="vertical-align: top; width: 2%; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 86%; text-align: center; border-bottom: Black 1pt solid"><B>Identification Of Exhibit</B></TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">1.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Underwriting Agreement**</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">3.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Incorporation filed July 24, 2000 (1)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">3.1.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Amendment to the Articles of Incorporation filed December 26, 2001 (1)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">3.1.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Amendment to the Articles of Incorporation filed November 9, 2005 (2)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">3.1.3</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Amendment to the Articles of Incorporation filed July 29, 2011 (15)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">3.1.4</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Amendment to the Articles of Incorporation filed June 19, 2012 (21)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">3.1.5</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Articles of Amendment to the Articles of Incorporation, as amended, of Venaxis, Inc., dated and filed December 12, 2012. (23)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">3.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amended and Restated Bylaws (3)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">4.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Specimen Certificate of Common Stock (22)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">4.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Common Stock Warrant between Venaxis and Liolios Group, Inc.&nbsp;&nbsp;*</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">4.3</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Warrant between the Company and each of the investors signatories to the Securities Purchase Agreement dated December 23, 2011 (16)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">4.4</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Warrant between the Company and the underwriter under each of an Underwriting Agreement dated June 19, 2012, November 14, 2012 and November 15, 2012, respectively (21)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">5.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Opinion of Ballard Spahr LLP**</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">10.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">2002 Stock Incentive Plan, as amended and restated effective July 1, 2007 (11)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to 2002 Stock Incentive Plan, dated June 9, 2008 (10)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to 2002 Stock Incentive Plan, dated November 20, 2009 (10)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.3</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to 2002 Stock Incentive Plan, dated November 22, 2010&nbsp;&nbsp;(12)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.4</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to Amended and Restated 2002 Stock&nbsp;&nbsp;Incentive Plan, as amended, dated July 8, 2011&nbsp;&nbsp;(14)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.5</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, of Venaxis, Inc., effective May 22, 2012. (19)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.1.6</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to Amended and Restated 2002 Stock Incentive Plan, as amended, of Venaxis, Inc., effective December 11, 2012. (23)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Underwriting Agreement (21)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.3</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Placement Agency Agreement, dated December 23, 2011, between the Company and Landenburg Thalmann &amp; Co. Inc.&nbsp;&nbsp;(16)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.3.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Securities Purchase Agreement between the Company and the investors signatories thereto. (16)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.4</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Exclusive License Agreement, dated May 1, 2004 between Venaxis and The Washington University, as amended.&nbsp;&nbsp;(9)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.5.</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Debt Modification Agreement executed May 9, 2013, and effective as of April 8, 2013 between Venaxis, Inc. and FirstBank.&nbsp;&nbsp;(25)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.5.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Loan Agreement between Venaxis, Inc. and Front Range Regional Economic Development Corporation dated June 13, 2003 for $1,300,000 regarding loan for physical plant or capital equipment acquisitions. (4)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.5.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Promissory Note dated June 13, 2003 by Venaxis, Inc. to Front Range Regional Economic Development Corporation in principal amount of $1,300,000. (4)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.5.3</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Unconditional Guarantee dated June 13, 2003 by Venaxis, Inc. to Front Range Regional Economic Development Corporation in principal amount of $1,300,000. (4)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">10.6</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Exclusive License Agreement with Novartis Animal Health, Inc., dated as of April 2, 2008. (5)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.6.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Amendment to Exclusive License Agreement with Novartis Animal Health, Inc., dated July 26, 2010 (13)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.6.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Termination and Settlement Agreement with Novartis Animal Health, Inc., dated November 15, 2011 (17)</FONT></TD></TR>
</TABLE>
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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR>
    <TD STYLE="vertical-align: top; width: 12%"><FONT STYLE="color: #465361">10.7</FONT></TD>
    <TD STYLE="vertical-align: top; width: 2%">&nbsp;</TD>
    <TD STYLE="width: 86%"><FONT STYLE="color: #465361">Executive Employment Agreement with Jeffrey McGonegal, effective as of February 10, 2009. (6)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.8</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Assignment and Consultation Agreement, dated May 29, 2003, between Venaxis and John Bealer, M.D. (7)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.9</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Executive Employment Agreement with Greg Pusey effective as of January 1, 2010. (10)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">10.10</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Executive Employment Agreement with Stephen Lundy effective as of March 24, 2010. (8)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.11</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Form of Stock Option Agreement under the 2002 Stock Incentive Plan, as amended and restated and amended. (10)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">10.12</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Non-Employee Director Compensation. (24)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">10.13</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Executive Employment Agreement between Venaxis, Inc. and Donald Hurd, dated May 23, 2012. (18)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">10.14</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Exclusive License Agreement, dated July 25, 2012, between Ceva Sant&#1081; Animale S.A. and Venaxis, Inc. (20)</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">23.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Consent of GHP Horwath, P.C. *</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">23.2</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Consent of Ballard Spahr LLP (Included in Exhibit 5.1)**</FONT></TD></TR>
<TR>
    <TD><FONT STYLE="color: #465361">24.1</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Power of Attorney (included on signature page to this Registration Statement)</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">101</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Interactive data files pursuant to Rule 405 of Regulation S-T:&nbsp;&nbsp;(i) the Balance Sheets, (ii) the Statements of Operations, (iii) Statements of Stockholders Equity, (iv) the Statement of Cash Flows and (v) the Notes to the Financial Statements (A)</FONT>(24)</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: #465361">(A)</FONT></TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD><FONT STYLE="color: #465361">Pursuant to Rule 106T for Regulation S-T, the XBRL related information in Exhibit 101  shall not be deemed to be filed by the Company for purposes of Section 18 or any other provision of the Exchange Act of 1934, as amended.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<!-- Field: Rule-Page --><DIV ALIGN="LEFT"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 21%"><FONT STYLE="color: #465361">*</FONT></TD>
    <TD STYLE="width: 79%"><FONT STYLE="color: #465361">Filed herewith.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: #465361">**</FONT></TD>
    <TD><FONT STYLE="color: #465361">To be filed by amendment.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Incorporated by reference from the registrant&rsquo;s Registration Statement on Form S-1 (File no. 333-86190), filed April
12, 2002.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-QSB for the quarter ended October 31, 2005, filed November
10, 2005.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(3)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-Q for the quarter ended March 31, 2008 filed on May
15, 2008.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(4)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-KSB/A for the year ended December 31, 2004 (file no.
000-50019), filed March 29, 2004.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(5)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-Q for the quarter ended June 30, 2008, filed August
13, 2008.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(6)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K dated February 10, 2009, filed on February 17, 2009.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(7)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-K for the year ended December 31, 2008, filed March
16, 2009.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(8)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K dated March 25, 2010, filed March 26, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(9)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-Q for the quarter ended June 30, 2010, filed August
5, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(10)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-K for the year ended December 31, 2009, filed March
9, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(11)</TD><TD>Incorporated by reference from the registrant&rsquo;s Registration Statement on Form S-8, filed June 22, 2007.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(12)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated November 22, 2010 and filed November 29, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(13)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-K for the year ended December 31, 2010, filed April
15, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(14)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated July 8, 2011 and filed July 13, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(15)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated and filed July 29, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(16)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated December 23, 2011 and filed December 28, 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(17)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-K/A for the year ended December 31, 2011, filed April
9, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(18)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated May 23, 2012 and filed May 24, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(19)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated May 22, 2012 and filed May 24, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(20)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated July 25, 2012 and filed July 30, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(21)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated June 19, 2012 and filed June 20, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(22)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated and filed June 25, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(23)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated December 11, 2012 and filed December 13, 2012.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(24)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 10-K for the year ended December 31, 2012, filed March
26, 2013.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; color: rgb(70,83,97)"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in">(25)</TD><TD>Incorporated by reference from the registrant&rsquo;s Report on Form 8-K, dated May 9, 2013 and filed May 9, 2013.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)"><B>Item 17. Undertakings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">(h) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or
controlling person connected with the securities being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">(i) The undersigned registrant hereby undertakes that:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">1. For purposes of determining any liability
under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">2. For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>SIGNATURES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Castle Rock, Douglas County, State of Colorado, on May 9, 2013.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2"><B>Venaxis, Inc.</B></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 37%">&nbsp;</TD>
    <TD STYLE="width: 10%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">By </TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid">:/s/ Stephen T. Lundy </TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP>Stephen T. Lundy </TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP>President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP>(principal executive officer)</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">By</TD>
    <TD STYLE="border-bottom: Black 1pt solid">:/s/ Jeffrey G. McGonegal</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Jeffrey G. McGonegal</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>(principal financial officer and </TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>principal accounting officer)</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; color: rgb(70,83,97)"><B>POWER OF ATTORNEY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><B>KNOW ALL PERSONS BY THESE PRESENTS</B>,
that each person whose signature appears below constitutes and appoints each of Stephen T. Lundy and Jeffrey G. McGonegal as true
and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for them and in their name, place and
stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this
registration statement and any additional registration statements filed pursuant to Rule 462, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission (the &ldquo;SEC&rdquo;), and
generally to do all such things in their names and behalf in their capacities as officers and directors to enable the Company to
comply with the provisions of the Securities Act of 1933 and all requirements of the SEC, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do in person, ratifying and confirming all that said
attorney-in-fact and agent, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; color: rgb(70,83,97)">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 32%"><B>Signature</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%"><B>Title</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%"><B>Date</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Stephen T. Lundy</TD>
    <TD>&nbsp;</TD>
    <TD>President, Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Stephen T. Lundy</TD>
    <TD>&nbsp;</TD>
    <TD>and Director (principal executive</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>officer)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Jeffrey G. McGonegal</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer (principal</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Jeffrey G. McGonegal</TD>
    <TD>&nbsp;</TD>
    <TD>financial officer and principal</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>accounting officer)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Gail S. Schoettler</TD>
    <TD>&nbsp;</TD>
    <TD>Non-Executive Chair</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Gail S. Schoettler</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: rgb(70,83,97)">&nbsp;</P>


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<TR STYLE="vertical-align: top">
    <TD STYLE="width: 32%"><B>Signature</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%"><B>Title</B></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 32%"><B>Date</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Susan A. Evans</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Susan A. Evans</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Daryl J. Faulkner</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Daryl J. Faulkner</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ John H. Landon</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>John H. Landon</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ David E. Welch</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>May 9, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>David E. Welch</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD>
    <TD>&nbsp;</TD>
    <TD>May __, 2013</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Stephen A. Williams</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>2
<FILENAME>v344449_ex4-2.htm
<DESCRIPTION>EXHIBIT 4.2
<TEXT>
<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0; text-align: right">Exhibit 4.2</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0; text-align: justify">THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT, AS AMENDED,
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT
TO A VALID EXEMPTION THEREFROM UNDER THE SECURITIES ACT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Warrant No. [_____________]</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Issue Date: [______________]</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>WARRANT TO PURCHASE SHARES OF COMMON
STOCK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>OF</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>ASPENBIO PHARMA, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">THIS CERTIFIES that,
for value received, Liolios Group, Inc., is entitled to purchase from ASPENBIO PHARMA, INC., a Colorado corporation (the &ldquo;Corporation&rdquo;),
subject to the terms and conditions hereof, 5,000 shares (the &ldquo;Warrant Shares&rdquo;) of common stock, no par value (the
&ldquo;Common Stock&rdquo;). This warrant, together with all warrants hereafter issued in exchange or substitution for this warrant,
is referred to as the &ldquo;Warrant&rdquo; and the holder of this Warrant is referred to as the &ldquo;Holder.&rdquo; The number
of Warrant Shares is subject to adjustment as hereinafter provided. Notwithstanding anything to the contrary contained herein,
this Warrant shall expire at 5:00pm EST on [_______________], three years from Issue Date (the &ldquo;Termination Date&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">1. <U>Exercise of Warrants</U>.
(a) The Holder may, at any time prior to the Termination Date, exercise this Warrant in whole or in part at an exercise price per
share equal to $[_____] per share, subject to adjustment as provided herein (the &ldquo;Warrant Price&rdquo;), by the surrender
of this Warrant (properly endorsed) at the principal office of the Corporation, or at such other agency or office of the Corporation
in the United States of America as the Corporation may designate by notice in writing to the Holder at the address of such Holder
appearing on the books of the Corporation, and by payment to the Corporation of the Warrant Price in lawful money of the United
States by check or wire transfer for each share of Common Stock being purchased. Upon any partial exercise of this Warrant, there
shall be executed and issued to the Holder a new Warrant in respect of the shares of Common Stock as to which this Warrant shall
not have been exercised. In the event of the exercise of the rights represented by this Warrant, a certificate or certificates
for the Warrant Shares so purchased, as applicable, registered in the name of the Holder, shall be delivered to the Holder hereof
as soon as practicable after the rights represented by this Warrant shall have been so exercised.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 38.8pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 38.8pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 38.8pt">(b)&#9;Holder is granted &ldquo;Cashless
Exercise Rights&rdquo;, whereby if notice of exercise by Holder specifies that the exercise of this Warrant is made pursuant to
this Section 1, then the Company shall deliver to Holder, without payment by Holder of any Exercise Price or any cash or other
consideration, the number of Company Shares computed using the following formula:</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.5in; text-indent: 0.5in">X =&#9;<U>Y(A-B)</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1.75in; text-indent: 0.5in">&nbsp;&nbsp;&nbsp;A</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: 0.5in">Where:&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">X =&#9;the number of Warrant
Shares to be issued to the Holder pursuant to the exercise of this Warrant pursuant to this Section 4;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">Y =&#9;the number of Shares that
may be purchased upon exercise of this Warrant;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">A =&#9;the Market Price, as defined
below, of one share of Common Stock; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-indent: -0.5in">B =&#9;the Exercise Price per
share of Common Stock.</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&ldquo;Market Price&rdquo; of an security means the
average of the closing prices of such security&rsquo;s sales on all securities exchanges on which such security may at the time
be listed based upon the average of the ten preceding business days prior to the date of exercise, or, if there has been no sales
on any such exchanges on any day, the average of the highest bid and the lowest asked prices on all such exchanges for such period,
or, if on a day any such security is not listed, the average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00pm Eastern Time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2. <U>Reservation of
Warrant Shares</U>. The Corporation agrees that, prior to the expiration of this Warrant, it will at all times have authorized
and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the number of Warrant
Shares as from time to time shall be issuable by the Corporation upon the exercise of this Warrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">3. <U>No Holder Rights</U>.
This Warrant shall not entitle the holder hereof to any voting rights or other rights as a Holder of the Corporation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4. <U>Transferability
of Warrant</U>. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed for transfer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5. <U>Certain Adjustments</U>.
With respect to any rights that Holder has to exercise this Warrant and convert into shares of Common Stock, Holder shall be entitled
to the following adjustments:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(a)&#9;<U>Merger or Consolidation</U>.
If at any time there shall be a merger or a consolidation of the Corporation with or into another corporation when the Corporation
is not the surviving corporation, then, as part of such merger or consolidation, lawful provision shall be made so that the holder
hereof shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment
of the aggregate Warrant Price then in effect, the number of shares of stock or other securities or property (including cash) of
the successor corporation resulting from such merger or consolidation, to which the holder hereof as the holder of the stock deliverable
upon exercise of this Warrant would have been entitled in such merger or consolidation if this Warrant had been exercised immediately
before such merger or consolidation. In any such case, appropriate adjustment shall be made in the application of the provisions
of this Warrant with respect to the rights and interests of the holder hereof as the holder of this Warrant after the merger or
consolidation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(b)&#9;<U>Reclassification, Recapitalization,
etc.</U> If the Corporation at any time shall, by subdivision, combination or reclassification of securities, recapitalization,
automatic conversion, or other similar event affecting the number or character of outstanding shares of Common Stock, or otherwise,
change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities
of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities
as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights
under this Warrant immediately prior to such subdivision, combination, reclassification or other change.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in"><FONT STYLE="color: black">(c)&#9;</FONT><U>Split
or Combination of Common Stock and Stock Dividend</U>. In case the Corporation shall at any time subdivide, re-divide, recapitalize,
split (forward or reverse) or change its outstanding shares of Common Stock into a greater number of shares or declare a dividend
upon its Common Stock payable solely in shares of Common Stock, the Warrant Price shall be proportionately reduced and the number
of Warrant Shares proportionately increased. Conversely, in case the outstanding shares of Common Stock of the Corporation shall
be combined into a smaller number of shares, the Warrant Price shall be proportionately increased and the number of Warrant Shares
proportionately reduced. Notwithstanding the foregoing, in no event will the Warrant Price be reduced below the par value of the
Common Stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6. <U>Legend and Stop
Transfer Orders</U>. Unless the Warrant Shares have been registered under the Securities Act, upon exercise of any part of the
Warrant, the Corporation shall instruct its transfer agent to enter stop transfer orders with respect to such Warrant Shares, and
all certificates or instruments representing the Warrant Shares shall bear on the face thereof substantially the following legend:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">THE SECURITIES EVIDENCED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED
IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE SECURITIES ACT.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">7. <U>Vesting.</U>
The right to exercise this Warrant shall vest at the date of issuance and rights shall be 100% vested and exercisable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">8. <U>Registration Rights.</U> This Warrant
is subject to the REGISTRATION RIGHTS ADDENDUM &ndash; LIOLIOS AGREEMENT attached hereto and made a part of the Warrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">9. <U>Miscellaneous</U>.
This Warrant shall be governed by and construed in accordance with the laws of the State of Colorado. All the covenants and provisions
of this Warrant by or for the benefit of the Corporation shall bind and inure to the benefit of its successors and assigns hereunder.
Nothing in this Warrant shall be construed to give to any person or corporation other than the Corporation and the holder of this
Warrant any legal or equitable right, remedy or claim under this Warrant. This Warrant shall be for the sole and exclusive benefit
of the Corporation and the holder of this Warrant. The section headings herein are for convenience only and are not part of this
Warrant and shall not affect the interpretation hereof. Upon receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Corporation, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Corporation shall execute and deliver to the Holder a new
Warrant of like date, tenor and denomination.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">IN WITNESS WHEREOF,
the Corporation has caused this Warrant to be executed by its duly authorized officers under its seal, this __ day of [____________].</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">ASPENBIO PHARMA, INC.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 5%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 45%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">By:&nbsp;&nbsp;</FONT></TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Name: </FONT></TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Title:&nbsp;&nbsp;&nbsp;</FONT></TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 2.5in; text-align: justify; text-indent: 0.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>WARRANT EXERCISE FORM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>To Be Executed by the Holder in Order
to Exercise Warrant</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0in"></TD><TD STYLE="width: 0.25in; text-align: left">To:</TD><TD STYLE="text-align: justify">AspenBio Pharma, Inc.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.25in; text-indent: 0.5in">1585 S. Perry Street</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.25in; text-indent: 0.5in">Castle Rock, CO 80104</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt -0.25in; text-indent: 0.5in">Attention: Chief Financial Officer</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Dated:____________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 10.5pt">The undersigned, pursuant to the provisions
set forth in the attached Warrant No.&nbsp;______, hereby irrevocably elects to purchase <I>(check applicable box)</I>:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 10.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Courier; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">_________ shares of the Common Stock of AspenBio Pharma, Inc. covered
by such Warrant; or<I> </I></FONT></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Courier">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Courier; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in subsection&nbsp;1(b) (if applicable).</FONT></TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Courier">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 10.5pt">The undersigned herewith makes payment
of the full purchase price for such shares at the price per share provided for in such Warrant. Such payment takes the form of
<I>(check applicable box or boxes)</I>:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 10.5pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in; text-align: left"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify">$______ in lawful money of the United States; and/or</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: 0in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD>if the provisions of subsection 1(b) of this Warrant are in effect, the cancellation of such portion of the attached Warrant
as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation);
and/or</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD>if the provisions of subsection 1(b) of this Warrant are in effect, the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection&nbsp;1(b), to exercise this Warrant with respect to the maximum
number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection&nbsp;1(b).</TD></TR></TABLE>

<P STYLE="margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">The undersigned hereby requests that certificates
for the Warrant Shares purchased hereby be issued in the name of:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 45%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 45%; font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">(please
print or type name and address)</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">(please
insert social security or other identifying number)</FONT></TD></TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 45%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; width: 45%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">and be delivered as follows:</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;(please print or type name and address)</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;(please insert social security or other identifying number)</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Courier; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">and if such number of shares of Common
Stock shall not be all the shares evidenced by this Warrant Certificate, that a new Warrant for the balance of such shares be registered
in the name of, and delivered to, Holder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 55%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 45%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Signature of Holder</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">SIGNATURE GUARANTEE:</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line; text-align: justify; border-bottom: Black 1pt solid">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 3.5in"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>ASSIGNMENT FORM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(To assign the foregoing warrant, execute<BR>
this form. Do not use this form to exercise the warrant.)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">FOR VALUE RECEIVED,
the foregoing Warrant and all rights evidenced thereby are hereby assigned to</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in"><BR></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in"></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%; border-bottom: windowtext 1pt solid; font: 10pt Courier New, Courier, Monospace; padding-right: 5.4pt; padding-left: 5.4pt; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="width: 34%">&nbsp;whose address is</TD>
</TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in"><BR> </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></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: 100%; border-bottom: windowtext 1pt solid; font: 10pt Courier New, Courier, Monospace; padding-right: 5.4pt; padding-left: 5.4pt; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font: 10pt Courier New, Courier, Monospace; padding-right: 5.4pt; padding-left: 5.4pt; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: windowtext 1pt solid; font: 10pt Courier New, Courier, Monospace; padding-right: 5.4pt; padding-left: 5.4pt; layout-grid-mode: line">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></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: 60%; font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="width: 40%; font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line"><FONT STYLE="font-family: Times New Roman, Times, Serif">Dated:&nbsp;&nbsp;_____________________, _______</FONT></TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="width: 15%; font-family: Courier New, Courier, Monospace; layout-grid-mode: line"><FONT STYLE="font-family: Times New Roman, Times, Serif">Holder's Signature:</FONT></TD>
    <TD STYLE="width: 45%; border-bottom: windowtext 1pt solid; font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line"><FONT STYLE="font-family: Times New Roman, Times, Serif">Holder's Address:</FONT></TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-family: Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></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: 18%; font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line"><FONT STYLE="font-family: Times New Roman, Times, Serif">Signature Guaranteed:</FONT></TD>
    <TD STYLE="width: 82%; border-bottom: windowtext 1pt solid; font: 10pt Courier New, Courier, Monospace; layout-grid-mode: line">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">NOTE: The signature to this Assignment
Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever,
and must be guaranteed by a bank or trust Corporation. Officers of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing Warrant.</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Courier; margin: 0pt 0"></P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0in"><FONT STYLE="font-weight: normal">REGISTRATION
RIGHTS ADDENDUM &ndash; LIOLIOS AGREEMENT</FONT></P>

<P STYLE="font: 10pt Courier; margin: 0pt 0; text-align: center; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">This REGISTRATION RIGHTS
AGREEMENT (this &ldquo;<U>Agreement</U>&rdquo;) is made a part of the Liolios Warrant issued herewith, by and between AspenBio
Pharma, Inc., a Colorado corporation (the &ldquo;<U>Company</U>&rdquo;), and Liolios Group, Inc., (&quot;<U>Holder</U>&quot;).
The Company and the Holder is sometimes referred to herein individually as a &ldquo;<U>Party</U>&rdquo; and collectively as the
&ldquo;<U>Parties</U>.&rdquo;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">The Parties agree as
follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">1.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Definitions</U>. For purposes of this Agreement, the following terms have the indicated meanings:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">1.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>&ldquo;<U>Common Stock</U>&rdquo; means the Company&rsquo;s Common Stock, no par value per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">1.2<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>&ldquo;<U>Piggyback Registration</U>&rdquo; has the meaning set forth in Section 2.1 hereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">1.3<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT> &ldquo;<U>Register</U>,&rdquo; &ldquo;<U>Registered</U>,&rdquo; and &ldquo;<U>Registration</U>&rdquo; refer to a registration
effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as
amended, or successor statute (the &ldquo;<U>Securities Act</U>&rdquo;), and the declaration or ordering of effectiveness of such
registration statement or document.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">1.4<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>&ldquo;<U>Registrable Securities</U>&rdquo; means (i) the shares of Common Stock underlying the Warrants issued herewith
and (ii) any Common Stock issued or issuable to the Holder with respect to the Common Stock referred to in clause (i) by way of
a dividend, split, or in connection with a combination of securities, recapitalization, merger, consolidation or other reorganization;
provided however, that with respect to any Registrable Securities, such securities shall cease to be Registrable Securities when
(x) they have been sold pursuant to an effective registration statement registering such securities under the Securities Act, (y)
they have been sold in compliance with paragraph (d) of Rule 145 or (z) they are eligible to be sold pursuant to subsection (k)
of Rule 144.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">2.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Registration Rights</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Piggyback Registration</U>. In the event the Company proposes to register any of its securities under the Securities
Act in an underwritten offering by filing any form of registration statement (other than Form S-4 or Form S-8 or the successor
form of either of them) that would legally permit the inclusion of Registrable Securities, the Company shall give the Holder written
notice thereof as soon as practicable but in no event less than 30 days prior to the filing of such registration statement, and
shall provide the Holder an opportunity to include in such registration all Registrable Securities requested by the Holder in writing
to be included therein, subject to the limitations set forth in this Section 2.2. If Holder chooses to include in any such registration
statement all or any part of the Registrable Securities it holds, such Holder shall, within 10 days after the above-described notice
from the Company, <FONT STYLE="color: black">so notify the Company in writing. Such notice shall state the intended method of disposition
of the Registrable Securities by the H</FONT>older<FONT STYLE="color: black">. If any H</FONT>older <FONT STYLE="color: black">decides
not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such H</FONT>older
<FONT STYLE="color: black">shall nevertheless continue to have the right to include any Registrable Securities in any subsequent
registration statement or registration statements as may be filed by the Company with respect to underwritten offerings of its
securities, all upon the terms and conditions set forth herein.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: black"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2.2<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Underwriting</U>. If the registration statement for which the Holder has registration rights under this Agreement is
for an underwritten offering, the Company shall so advise <FONT STYLE="color: black">the H</FONT>older. The right of <FONT STYLE="color: black">the
H</FONT>older to be included in a registration pursuant to this Agreement shall be conditioned upon <FONT STYLE="color: black">the
H</FONT>older's participation in such underwriting and the inclusion of <FONT STYLE="color: black">the </FONT>Registrable Securities
in the underwriting to the extent provided herein. If the Holders elect to participate in such offering, <FONT STYLE="color: black">the
</FONT>Holders shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Agreement, the Company, upon advice from its underwriters,
reserves the right to reduce (on a pro rata basis) or eliminate the number of shares that may be included in the underwriting based
upon a good faith determination that marketing factors require a limitation or elimination of the number of shares to be underwritten.
The Company or its underwriters may also condition the participation of the Holder in such underwriting upon the Holder entering
into a lock-up agreement with the Company or its underwriters for such period of time deemed appropriate by the underwriters. If
any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least 10 business days prior to the effective date of the registration statement.
Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2.3<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Costs of Registration</U>. The Company shall bear the costs of each registration in which the Holders participate pursuant
to Section 2.2, but excluding any underwriting discounts or commissions on the sale of Registrable Securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2.4<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Transferability of Registration Rights</U>. The rights to cause the Company to register Registrable Securities pursuant
to this Section 2 may not be transferred by the Holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">2.5<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Reports under Securities Exchange Act of 1934</U>. With a view to making available to the Holder the benefits of Rule&nbsp;144
promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit the Holders to sell
securities of the Company to the public pursuant to a registration on Form&nbsp;S-3 or without registration, the Company agrees
to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(a)<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>make and keep public information available, as those terms are understood and defined in SEC Rule&nbsp;144, at all times
after the effective date of the first registration statement filed by the Company for the offering of its securities to the general
public so long as the Company remains subject to the periodic reporting requirements under Sections&nbsp;13 or 15(d) of the Securities
Exchange Act of 1934, as amended, or any successor statute (the &ldquo;<U>Exchange Act</U>&rdquo;);</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(b)<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and
the Exchange Act; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">(c)<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>furnish to the Holder, so long as accurate and so long as the Holders own any Registrable Securities, forthwith upon request
(i)&nbsp;a written statement by the Company that it has complied with the reporting requirements of SEC Rule&nbsp;144, the Securities
Act and the Exchange Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form&nbsp;S-3 (or any
successor form that provides for short-form registration) (at any time after it so qualifies), and such other information as may
be reasonably requested in availing the Holder of any rule or regulation of the SEC that permits the selling of any such securities
without registration or pursuant to such form.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">3.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Obligations of the Company</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
the registration of the Registrable Securities, the Company shall have the following obligations:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">3.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to
a registration statement and the prospectus used in connection with the registration statement as may be necessary to keep the
registration statement effective at all times required for such registration statement under this Agreement, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered
by the registration statement until the termination of said period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">4.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Obligations of the Holders</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In connection with
the registration of the Registrable Securities, the Holders shall have the following obligations:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Each Holder shall furnish to the Company such information regarding himself, the Registrable Securities held by him and
the intended method of disposition of the Registrable Securities held by him as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably
request. At least 10 business days prior to the first anticipated filing date of the registration statement, the Company shall
notify the Holders of the information the Company requires from the Holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4.2<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Holders, by acceptance of the Registrable Securities, agree to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the registration statements hereunder, unless the Holders have notified
the Company in writing of their election to exclude all of their Registrable Securities from the applicable registration statement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4.3<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>In the event the Registrable Securities are included in a registration statement, the Holders understand that the Securities
Act may require delivery of a prospectus relating thereto in connection with any sale thereof pursuant to such registration statement,
and each Holder shall comply with the applicable prospectus delivery requirements of the Securities Act in connection with any
such sale.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4.4<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Holders agree to notify the Company promptly, but in any event within five business days after the date on which all
Registrable Securities covered by a registration statement that are owned by the Holders have been sold by the Holders, if such
date is prior to the expiration of the Registration Period, so that the Company may comply with its obligation to terminate such
registration statement in accordance with Item 512(a)(3) of Regulation S-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">4.5<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Holders may not participate in any underwritten distribution pursuant to a registration statement under Section 2.2
unless the Holder (a) agrees to sell their Registrable Securities on the basis provided in any underwriting arrangements in usual
and customary form entered into by the Company, (b) complete and execute all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such underwriting arrangements, and (c) agree to pay its
pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant
to Section 2.3.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">5.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Indemnification</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">In the event any Registrable
Securities are included in a registration statement under this Agreement:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Company shall defend, indemnify, and hold harmless, to the fullest extent permitted by law, the Holder against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or a fact necessary to make the statements therein not misleading, except insofar
as the same are caused by and contained in any information furnished in writing to the Company by the Holder expressly for use
therein. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 5.1,
as it pertains to any preliminary or final prospectus, shall not inure to the benefit of any indemnified Party if the untrue statement
or omission of material fact contained in the preliminary or final prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 3.3
hereof, and the indemnified Party was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise
to a violation and such indemnified Party, notwithstanding such advice, used such incorrect prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.2<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Each Holder shall defend, indemnify, and hold harmless, to the extent permitted by law, the Company, its directors, officers,
employees and agents and each Party who controls (within the meaning of the Securities Act) the Company or such other indemnified
Party against any losses, claims, damages, liabilities and expenses (including with respect to any claim for indemnification hereunder
asserted by any other indemnified Party) resulting from any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is caused by and contained in such information so furnished in writing
by such Holder. The indemnification provided under this Section 5.2 shall be several and not joint.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.3<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Any Party entitled to indemnification hereunder shall give prompt written notice to the indemnifying Party of any claim
with respect to which its seeks indemnification; provided, however, the failure to give such notice shall not release the indemnifying
Party from its obligation under this Section 5, except to the extent that the indemnifying Party has been materially prejudiced
by such failure to provide such notice.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.4<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>In any case in which any such action is brought against any indemnified Party, and it notifies an indemnifying Party of
the commencement thereof, the indemnifying Party will be entitled to participate therein, and, to the extent that it may wish,
jointly with any other indemnifying Party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified Party, and after notice from the indemnifying Party to such indemnified Party of its election so to assume
the defense thereof, the indemnifying Party will not (so long as it shall continue to have the right to defend, contest, litigate
and settle the matter in question in accordance with this paragraph) be liable to such indemnified Party hereunder for any legal
or other expense subsequently incurred by such indemnified Party in connection with the defense thereof other than reasonable costs
of investigation, supervision and monitoring (unless such indemnified Party reasonably objects to such assumption on the grounds
that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying
Party, in which event the indemnified Party shall be reimbursed by the indemnifying Party for the expenses incurred in connection
with retaining separate legal counsel). An indemnifying Party shall not be liable for any settlement of an action or claim effected
without its consent. The indemnifying Party shall lose its right to defend, contest, litigate and settle a matter if it shall fail
to diligently contest such matter (except to the extent settled in accordance with the next following sentence). No matter shall
be settled by an indemnifying Party without the consent of the indemnified Party (which consent shall not be unreasonably withheld).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.5<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified Party and will survive the transfer of the Registrable Securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.6<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>If the indemnification provided for in Section 5.1 or 5.2 from the indemnifying Party is unavailable to an indemnified Party
in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying Party, in lieu of
indemnifying the indemnified Party, shall contribute to the amount paid or payable by each indemnified Party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of such indemnifying
Party on the one hand and of the indemnified Party or Parties on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative
fault of the indemnifying Party and of the indemnified Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information
supplied by the indemnifying Party or by the indemnified Party and the Parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or omission.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">5.7<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>The Parties agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to
in the immediately preceding paragraph. No person liable for fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who was not liable for such fraudulent misrepresentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in"><FONT STYLE="text-transform: uppercase">6.<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT><U>Miscellaneous</U>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.1<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Enforceability/Severability.</U> If any provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained herein.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.2<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Remedies.</U> The Parties shall be entitled to enforce their rights under this Agreement specifically or to recover damages
by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The Parties
agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that
the Company or the Holder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of
the provisions of this Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.3<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Entire Agreement; Successors and Assigns</U>. Except as otherwise expressly set forth herein, this document embodies
the complete agreement and understanding among the Parties with respect to the subject matter hereof and supersedes and preempts
any prior understandings, agreements or representations by or among the Parties, written or oral, which may have related to the
subject matter hereof in any way. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors
and assigns of the Parties. This Agreement may not be assigned by any Holder.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.4<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Governing Law</U>. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado,
without giving effect to conflicts of laws principles.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.5<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Counterparts</U>. This Agreement may be executed in counterparts, each of which shall be an original, and all of which
taken together constitute one and the same instrument.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.6<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Headings</U>. The section headings of this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.7<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Notices</U>. Any notice, request or other communication required or permitted hereunder shall be in writing and shall
be delivered personally or by facsimile (receipt confirmed electronically) or shall be sent by a reputable express delivery service
or by certified mail, postage prepaid with return receipt requested, addressed as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><U>If to the Holders</U>:&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Liolios Group, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">2431 West Coast Highway</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Suite 205</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Newport Beach, CA 92663</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">949 574-3860</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><U>If to the Company</U>:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">AspenBio Pharma, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">1585 S. Perry Street</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Castle Rock, CO 80104</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Either Party hereto may change the above specified recipient
or mailing address by notice to the other Party given in the manner herein prescribed. All notices shall be deemed given on the
day when actually delivered as provided above (if delivered personally or by facsimile, provided that any such facsimile is received
during regular business hours at the recipient's location) or on the day shown on the return receipt (if delivered by mail or delivery
service).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">6.8<FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT><U>Amendment and Waiver</U>. Except as otherwise provided herein, no amendment or waiver of any provision of this Agreement
shall be effective against the Company or the Holder unless such amendment or waiver is approved in writing by the Company and
the Holder. The failure of any Party to enforce any provision of this Agreement shall not be construed as a waiver of such provision
and shall not affect the right of such Party thereafter to enforce each provision of this Agreement in accordance with its terms.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Courier; margin: 0pt 0; text-align: center"># # # # # #</P>

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<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>3
<FILENAME>v344449_ex23-1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0; text-align: right">Exhibit 23.1</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin-top: 0; text-align: center; margin-bottom: 0"><U>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">We hereby consent to the use in this Registration
Statement of our report dated March 26, 2013, relating to the financial statements of Venaxis, Inc., and to the reference to our
Firm under the caption &ldquo;Experts&rdquo; in the Prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in"><U>/s/ GHP Horwath, P.C.</U><BR>
GHP Horwath, P.C.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0in">Denver, Colorado<BR>
May 9, 2013</P>

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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
