<SEC-DOCUMENT>0001019687-12-004555.txt : 20121217
<SEC-HEADER>0001019687-12-004555.hdr.sgml : 20121217
<ACCEPTANCE-DATETIME>20121217163042
ACCESSION NUMBER:		0001019687-12-004555
CONFORMED SUBMISSION TYPE:	424B3
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20121217
DATE AS OF CHANGE:		20121217

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PRECISION OPTICS Corp INC
		CENTRAL INDEX KEY:			0000867840
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
		IRS NUMBER:				042795294
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		424B3
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-184618
		FILM NUMBER:		121268970

	BUSINESS ADDRESS:	
		STREET 1:		22 EAST BROADWAY
		CITY:			GARDNER
		STATE:			MA
		ZIP:			01440
		BUSINESS PHONE:		978-630-1800

	MAIL ADDRESS:	
		STREET 1:		22 EAST BROADWAY
		CITY:			GARDNER
		STATE:			MA
		ZIP:			01440

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PRECISION OPTICS CORPORATION INC
		DATE OF NAME CHANGE:	19930328

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PRECISION OPTICS CORP INC
		DATE OF NAME CHANGE:	19600201
</SEC-HEADER>
<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>precision_424b3.htm
<DESCRIPTION>RULE 424B3 PROSPECTUS
<TEXT>
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<P STYLE="margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: right"><B>Filed pursuant to Rule 424(b)(3)</B></P>

<P STYLE="margin: 0; text-align: right"><B>File No. 333-184618</B></P>



<P STYLE="margin: 0"></P>

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

<P STYLE="margin: 0"></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><IMG SRC="image_001.jpg" ALT="POC - Precision Optics Corporation" STYLE="height: 135px; width: 489px"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>OFFERING UP TO 5,730,547 SHARES OF COMMON
STOCK</B></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">This prospectus relates to the sale or
other disposition of up to 5,730,547 shares of our common stock and shares underlying warrants by selling stockholders. We are
not selling any securities in this offering and therefore will not receive any proceeds from this offering. We may receive proceeds
from the possible future exercise of warrants.&nbsp;All costs associated with this registration will be borne by us. Our common
stock is quoted on the OTCQB under the symbol &ldquo;PEYE.&rdquo; On November 29, 2012, the last reported sale price of
our common stock on the OTCQB was $1.16 per share.</P>

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

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

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>THIS INVESTMENT INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD PURCHASE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE
LOSS.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SEE &ldquo;RISK FACTORS&rdquo; BEGINNING
ON PAGE 6.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<!-- Field: Rule-Page --><DIV ALIGN="CENTER" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 80%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">You should rely only on the information provided
in this prospectus or any supplement to this prospectus and information incorporated by reference. We have not authorized anyone
else to provide you with different information. Neither the delivery of this prospectus nor any distribution of the shares of common
stock pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs
since the date of this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"> The date of this prospectus
is December 17, 2012<FONT STYLE="background-color: white">.</FONT></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>TABLE OF CONTENTS</B></P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR>
    <TD STYLE="vertical-align: top; width: 83%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 6%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 11%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Page</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Prospectus Summary</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">1</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Risk Factors</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">6</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Use of Proceeds</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">9</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Selling Security Holders</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">9</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Plan of Distribution</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">16</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Description of Securities&nbsp;to be&nbsp;Registered</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">17</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Interests of Named Experts and Counsel</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">17</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Information about the Company</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">18</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Description of Business</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">18</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Description of Property</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">21</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Legal Proceedings</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">21</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Market Price of and Dividends on Common Equity and Related Stockholder Matters</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">22</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Financial Statements</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">F-1</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Management&rsquo;s Discussion and Analysis of Financial Conditions and Results of Operations</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">23</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">27</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in"> Quantitative and Qualitative Disclosures about Market Risk</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">27</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Directors, Executive Officers, Promoters and Control Persons</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">27</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Executive Compensation</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">29</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Security Ownership of Certain Beneficial Owners and Management</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">31</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Certain Relationships and Related Transactions</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">35</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Director Independence</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">36</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; text-indent: 0.5in"> Legal Matters</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">36</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; text-indent: 0.5in">Experts</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">36</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Disclosure of Commission Position on Indemnification for Securities Act Liabilities</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center">35</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;&nbsp;</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC.</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>The following information is a summary of
the prospectus and it does not contain all of the information you should consider before making an investment decision. You should
read the entire prospectus carefully, including the financial statements and the notes relating to the financial statements.</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">ABOUT US</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We incorporated in Massachusetts in December&nbsp;1982
and have been publicly-owned since November&nbsp;1990. References to our Company contained herein include our two wholly-owned
subsidiaries, Precise Medical,&nbsp;Inc. and Wood&rsquo;s Precision Optics Corporation, Limited, except where the context otherwise
requires. Our fiscal year end is June 30. Our principal executive offices are located at 22 East Broadway, Gardner, Massachusetts
01440-3338. Our telephone number is (978) 630-1800. Our website is www.poci.com. Information contained on our website does not
constitute part of this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">We have been developing and manufacturing
advanced optical instruments since 1982. Today, the vast majority of our business is the design and manufacture of high-quality
medical devices and approximately 10% of our business is design and manufacture of military and industrial products. Our medical
instrumentation line includes traditional endoscopes and endocouplers as well as other custom imaging and illumination products
for use in minimally invasive surgical procedures. Much of our recent development efforts have been targeted at the development
of next generation endoscopes. For the last ten years, we have funded internal research and development programs to develop next
generation capabilities for designing and manufacturing 3D endoscopes and very small Microprecision&trade; lenses, anticipating
future requirements as the surgical community continues to demand smaller and more enhanced imaging systems for minimally invasive
surgery. Our unique proprietary technology in these areas, combined with recent developments in the areas of 3D displays and millimeter
sized image sensors, has allowed us to begin commercialization of these technologies. We believe that new products based on these
technologies provide enhanced imaging for existing surgical procedures and can enable development of many new procedures. While
we have continued to provide custom optics solutions to our medical device company customers, we simultaneously focused significant
development efforts on further advancement of proprietary technology for 3D endoscopy and Microprecision&trade; optical components
and micro medical camera assemblies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">SUMMARY FINANCIAL DATA</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Because this is only a summary of our
financial information, it does not contain all of the financial information that may be important to you.&nbsp;&nbsp;Therefore,
you should carefully read all of the information in this prospectus and any prospectus supplement, including the financial statements
and their explanatory notes and the section entitled &ldquo;<I>Management&rsquo;s Discussion and Analysis of Financial Condition
and Results of Operations</I>,&rdquo; before making a decision to invest in our common stock. The information contained in
the following summary is derived from our financial statements for the quarters ended September 30, 2012 and 2011 and the fiscal
years ended June 30, 2012 and 2011 .&nbsp;&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&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"> Quarter <BR>Ended <BR>09/30/2012 </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"> Quarter <BR>Ended <BR>09/30/2011 </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">Fiscal Year<BR> Ended <BR> 06/30/2012</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">Fiscal Year<BR> Ended <BR> 06/30/2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 32%">Revenues</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left"> $ </TD><TD STYLE="width: 13%; text-align: right"> 563,398 </TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left"> $ </TD><TD STYLE="width: 13%; text-align: right"> 504,749 </TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">2,152,396</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">2,245,137</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cost of Goods Sold</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"> 433,925 </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"> 365,455 </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">1,594,990</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">1,493,021</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Gross profit</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"> 129,473 </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"> 139,294 </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">557,406</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">752,116</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Research and Development Expenses, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 207,291 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 151,190 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">664,696</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">825,033</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Selling, General and Administrative Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 280,964 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 253,356 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,187,665</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">958,509</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">Gain on Sale of Assets and 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"> (1,938 </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"> (2,050 </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">(10,226</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">(39,518</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">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"> 486,317 </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"> 402,496 </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">1,842,135</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">1,744,024</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 11pt">Operating loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> (356,844 </TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> (263,202 </TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,284,729</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(991,908</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Gain on Sale of Patents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> &ndash; </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 2,276,286 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,276,286</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Interest Income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> &ndash; </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 357 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">535</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">207</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest Expense</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"> (1,250 </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"> (15,000 </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">(30,208</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">(60,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 16pt; text-indent: -5pt">Income (Loss) before provision for income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> (358,094 </TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left"> &nbsp; </TD><TD STYLE="text-align: right"> 1,998,441 </TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">961,884</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,051,701</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Provision for Income Taxes</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"> &ndash; </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"> &ndash; </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">912</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">912</TD><TD STYLE="padding-bottom: 1pt; 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: 11pt">Net Income (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"> (358,094 </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"> 1,998,441 </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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">960,972</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,052,613</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

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

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

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

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    <!-- Field: /Page -->

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="vertical-align: top; width: 38%">Common stock outstanding as of November 29,  2012</TD>
    <TD STYLE="vertical-align: bottom; width: 10%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 52%; text-align: justify">4,029,134 shares</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">Common stock to be registered</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">5,730,547 shares</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">Use of proceeds</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">We will not receive any proceeds from the sale or other disposition of common stock by the selling stockholders. We may receive proceeds from the exercise of warrants. We intend to use the proceeds from the exercise of warrants, if any, for working capital purposes.</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">Stock symbol</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">PEYE</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">THE TRANSACTIONS</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Private Placement of Common Stock and Warrants on September
28, 2012</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, we closed on agreements
with accredited investors for the sale and purchase of units consisting of an aggregate of (i) 2,777,795
shares of our common stock, and (ii) warrants to purchase an aggregate of 1,944,475 shares of common stock, at a per unit price
of $0.90. Each unit consisted of one share of common stock and 70% warrant coverage. The warrants have an exercise price of $1.25
per share, subject to adjustment and a call provision if certain market price targets are reached, will expire five years from
September 28, 2012, and are exercisable in whole or in part, at any time prior to expiration. Certain directors and officers participated
in the offering and purchased a total aggregate amount of approximately $80,000 of units in the offering.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We received $2.5 million in gross proceeds
from the offering. We retained Loewen, Ondaatje, McCutcheon USA LTD as the exclusive placement agent for the offering. In addition
to the payment of certain cash fees upon closing of the offering, we issued a warrant to the placement agent to purchase up to
194,446 shares of common stock on substantially similar terms to the warrants issued in the offering,
except that the placement agent warrant has an exercise price of $0.95 per share. We anticipate using the net proceeds from the
offering to fund start-up costs associated with our previously-announced order for micro endoscopes
as well as other recently received orders for new products in addition to working capital needs and for general corporate
purposes.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> In conjunction with the offering, we
also entered into a registration rights agreement dated September 28, 2012 with the investors, whereby we are obligated to file
a registration statement with the Securities and Exchange Commission on or before thirty calendar days after September 28, 2012
to register the resale by the investors of the 2,777,795 shares of the common stock purchased in the offering, and the 1,944,475
shares of common stock underlying the warrants purchased in the offering. We filed such registration statement on October 26,
2012, prior to the filing deadline imposed by the registration rights agreement. We are also obligated to use all commercially
reasonable efforts to have the registration statement declared effective by the SEC within 60 days after the registration statement
is filed, or 90 days if we receive comments on the registration statement from the SEC. If there is not an effective registration
statement in place by the 60<SUP>th</SUP> day after October 26, 2012, or the 90<SUP>th</SUP> day after October 26, 2012 if we
receive comments from the SEC, we will have to pay an amount equal to 1.0% of the aggregate amount invested by each investor each
month as liquidated damages, subject to certain conditions. </P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders who participated in
the September 28, 2012 offering were as follows:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif; border: Black 1pt solid">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; border-right: Black 1pt solid">Selling Stockholder</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; border-right: Black 1pt solid">Common <BR>
shares<BR>
 purchased in<BR>
 the <BR>
September 2012<BR>
 offering</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid; border-right: Black 1pt solid">Shares that<BR>
 may be issued<BR>
 upon exercise<BR>
 of warrants<BR>
 in the <BR>
September<BR>
 2012 offering</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Consideration paid<BR>
 for common stock<BR>
 and warrants<BR>
 in the <BR>
September <BR>
2012 offering</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 43%; text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Allan, David G.</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 17%; border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 17%; border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 17%; border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Alpha Capital Anstalt</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">277,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">194,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">250,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Arno, Elizabeth</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Elizabeth Arno cust FBO George Arno UTMA</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">5,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">3,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Elizabeth Arno cust FBO Melissa Arno UTMA</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">5,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">3,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">DAFNA LifeScience Market Neutral, Ltd.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">54,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">70,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">DAFNA LifeScience, Ltd.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,111</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">99,999.90</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">DAFNA LifeScience Select, Ltd.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">200,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">140,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">180,000.00</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid"> DeBare, Charles
    A. </TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">55,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">38,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">50,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid"> DeBare, Mary
    A. </TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">55,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">38,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">50,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Forkey, Richard E.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Green, Mark</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">5,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">3,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Gutfreund, John Peter</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">11,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">7,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Iroquois Master Fund, Ltd.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">JBA Investments LLC</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Joseph N. Forkey and Heather C. Forkey JTTEN</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">22,223</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">15,557</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">20,000.70</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Karfunkel, George</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Kozersky, Lara</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">5,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">3,890</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,000.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Linda Gale Sampson Trust #2</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Loewen, Ondaatje, McCutcheon USA LTD (1)</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">&ndash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">194,446</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Major, Donald A.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Matluck, Robert</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">MHW Partners, L.P.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">222,223</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">155,557</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">200,000.70</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Miles, Richard B.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">11,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">7,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">MJA Investments LLC</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">NBCN INC. ITF AC 5VE158E GARRETT HERMAN (909369)</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">33,334</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">23,334</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,000.60</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Next Generation TS FBO Andrew Arno IRA 1663</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">O'Connor, Pamela F.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Riordan, Susan</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">11,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">7,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Saltiel, Howard</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Sarachek, Russell</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">SAS Trust #1</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Schumsky, Arnold</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">83,334</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">58,334</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">75,000.60</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Smith, Jr., William W.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">27,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">19,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">25,000.20</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Special Situations Fund III QP, L.P.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">611,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">427,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">550,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">Unterberg, Thomas I.</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">111,112</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">77,779</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">100,000.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt; padding-left: 5.4pt; border-right: Black 1pt solid">TOTAL</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">2,777,795</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: center; border-right: Black 1pt solid">2,138,921</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,500,015.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD STYLE="text-align: justify">We retained Loewen, Ondaatje, McCutcheon USA LTD as the exclusive placement agent for the offering.
In addition to the payment of certain cash fees upon closing of the offering, we issued a warrant to the placement agent to purchase
up to 194,446 shares of common stock on  similar terms to the warrants issued in
the offering. The placement agent warrant has an exercise price of $0.95 per share.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Private Placement of 10% Senior Secured Convertible Notes
and Warrants on June 25, 2008</I></B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">On June 25, 2008, we entered into a purchase agreement, as
amended on December 11, 2008, with institutional and other accredited investors pursuant to which we sold a total of $600,000
of 10% Senior Secured Convertible Notes, referred to as the &ldquo;Notes,&rdquo; that are convertible into a total of 480,000
shares of our common stock at a conversion rate of $1.25. We also issued warrants to purchase a total of 316,800 shares of our
common stock at an exercise price of $1.75 per share, referred to as the &ldquo;Warrants.&rdquo; Interest accrues on the Notes
at a rate of 10% per year and is payable in cash upon the earlier of conversion or maturity of the Notes. The original maturity
of the Notes mature was June 25, 2010 and the Warrants expire on June 25, 2015, subject to extension. By
mutual agreement with us, the investors amended the Notes on several dates to extend the &ldquo;Stated Maturity Date&rdquo; of
the Notes. The exercise price of the Warrants may be adjusted downward in the event we issue shares of common stock or securities
convertible into common stock at a price lower than the exercise price of the Warrants at the time of issuance .</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders that participated
in the June 25, 2008 offering were as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 82%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold"><B>Selling stockholder </B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><B>Warrants<BR>
 purchased in<BR>
June 25, 2008 offering</B></TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><B>Amount paid <BR>
for Notes <BR>
and warrants</B></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; width: 48%; padding-left: 10pt; text-indent: -10pt">Special Situations Fund III QP, L.P.</TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 13%; text-align: right">145,200</TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">$</TD>
    <TD STYLE="vertical-align: bottom; width: 13%; border-top: windowtext 1pt solid; text-align: right">275,000</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Special Situations Private Equity Fund, L.P.</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">145,200</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">275,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Arnold Schumsky</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">26,400</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">50,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-left: 10pt; font-weight: bold; text-indent: -10pt"><B>TOTAL</B></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; text-align: right">316,800</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; font-weight: bold"><B>$</B></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; text-align: right">600,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to the purchase agreement, the Notes
and Warrants were not convertible or exercisable until we implemented a 1 for 6 reverse stock split, which required the approval
of our stockholders. On November 25, 2008, we entered into a Side Letter Agreement in which the investors agreed to change the
ratio of the reverse split from 1 for 6 to 1 for 25. On December 11, 2008, we effected a 1 for 25 reverse split of our common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to a registration rights agreement
entered into with the investors on June 25, 2008, we agreed to file a registration statement with the SEC
by the earlier of (i) two days following the effectiveness of the amendment to implement a reverse stock split and (ii)
December 15, 2008, to register the resale of the common stock issuable upon the conversion of the Notes and the exercise of the
Warrants. We agreed to keep the registration statement effective until the earlier of (i) the date on which all the securities
covered by the registration statement, as amended from time to time, have been sold and (ii) the date on which all the securities
covered by such registration statement may be sold without restriction pursuant to Rule 144 of the Securities Act of 1933.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 15, 2011, we repaid Special Situations
Fund III QP, L.P. a principal repayment of $275,000 and accrued interest of $95,486, for a total payment of $370,486. On December
15, 2011, we repaid Special Situations Private Equity Fund, L.P. a principal repayment of $275,000 and accrued interest of $95,486,
for a total payment of $370,486. The Notes held by Special Situations Fund III QP, L.P. and Special Situations Private Equity Fund,
L.P. have been satisfied in full and the obligations thereunder have been terminated.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 31, 2012, the remaining investor,
Arnold Schumsky, further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the principal to July
31, 2012 and to modify the Note such that all accrued and unpaid interest on the Note up to and including March 31, 2012 shall
be due on or before April 13, 2012, on the condition that we issue to him a warrant for 5,000 shares of common stock with an exercise
price of $1.20 per share and a term of three years. On April 13, 2012, we repaid Mr. Schumsky a payment of the accrued interest
of $18,819, and such payment included all accrued and unpaid interest on the Note up to and including March 31, 2012. On May 8,
2012, we issued Mr. Schumsky the warrant according to the terms described in the amended Note. On July 31, 2012, Mr. Schumsky
further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the principal to August 31, 2012. On August
31, 2012, Mr. Schumsky further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the principal to
September 30, 2012.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 28, 2012, we repaid Mr. Schumsky
the outstanding and accrued interest of $2,500 due under his Note and such payment satisfied its obligations in regards to the
accrued interest due on the Note in full. On that same date, Mr. Schumsky presented the outstanding principal balance of the Note
to us and agreed to exchange the $50,000 principal balance of his Note for participation in our September 2012 private placement,
described in further detail above, and was issued units consisting of 55,555 shares of common stock and 38,889 warrants upon the
same terms as the units sold in the September 2012 private placement . Accordingly, the Note held by Mr. Schumsky has been
satisfied in full and the obligations thereunder have been 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">As a result of the issuance of warrants
to purchase 100,000 shares of common stock in December 2010 and the September 28, 2012 private placement described above, certain
anti-dilution provisions in the June 25, 2008 Warrants were triggered and we are obligated to issue an aggregate of 153,031 additional
shares upon the exercise of the June 25, 2008 Warrants. Additionally, the exercise price of the June 25, 2008 Warrants
was reduced from $1.74 to $1.18.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Private Placement of Common Stock and
Warrants on February 1, 2007</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 1, 2007, we entered into a purchase
agreement with institutional and other accredited investors pursuant to which we sold a total of 400,000 shares of our common
stock. We also issued warrants to purchase a total of 400,000 shares of our common stock at an exercise price of $8.00 per share.
The warrants expired on February 1, 2012 and therefore, the shares underlying the warrants are not included in this registration
statement . The selling stockholders that participated in the February 1, 2007 offering were as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold"><B>Selling stockholder </B></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><B>Common shares purchased<BR>
in February 1, 2007 offering</B></TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><B>Warrants purchased in<BR>
February 1, 2007 offering</B></TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center"><B>Amount paid for common<BR>
stock and warrants</B></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; width: 37%; padding-left: 10pt; text-indent: -10pt">Special Situations Fund III QP, L.P.</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 22%; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 18%; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">$</TD>
    <TD STYLE="vertical-align: bottom; width: 18%; text-align: right">1,000,000</TD>
    <TD STYLE="vertical-align: bottom; width: 1%">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Special Situations Private Equity Fund, L.P.</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1,000,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Arnold Schumsky</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">24,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">24,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">150,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Joel Pitlor</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">40,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">40,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">$</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">250,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">LaPlace Group LLC</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; text-align: right">16,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; text-align: right">16,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid">$</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; text-align: right">100,000</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; padding-left: 10pt; font-weight: bold; text-indent: -10pt"><B>TOTAL</B></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; font-weight: bold; text-align: right"><B>400,000</B></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; font-weight: bold; text-align: right"><B>400,000</B></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; font-weight: bold"><B>$</B></TD>
    <TD STYLE="vertical-align: bottom; border-bottom: windowtext 2.25pt double; font-weight: bold; text-align: right"><B>2,500,000</B></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As part of the February 1, 2007 private placement,
we entered into a registration rights agreement pursuant to which we agreed to file a registration statement with the SEC within forty-five days after the closing date to register the resale of the shares of common stock and
the shares of common stock issuable upon exercise of the warrants. We also agreed to keep the registration statement effective
until the earlier of (i) such time as all of the shares covered by the registration statement have been sold or (ii) the date on
which the shares may be sold pursuant to Rule 144 of the Securities Act of 1933. The SEC declared
the registration statement registering these shares effective on March 23, 2007. In the event additional shares become issuable
upon the exercise of the warrants, we agreed to register such additional shares to the extent that such shares are not covered
by an effective registration statement.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As our previous registration statements
for the February 1, 2007 and the June 25, 2008 transactions have become stale, we are  required to register the securities again.
The investors who participated in the February 1, 2007 and the June 25, 2008 transactions and are named as &ldquo;Selling
Security Holders&rdquo; in this prospectus are as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 35%; border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Selling stockholder</TD>
    <TD STYLE="width: 13%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Common shares purchased in the February 1, 2007 transaction</TD>
    <TD STYLE="width: 13%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Shares that may be issued upon exercise of warrants acquired in February 1, 2007 transaction</TD>
    <TD STYLE="width: 13%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Shares that may be issued upon exercise of warrants acquired in June 25, 2008 transaction</TD>
    <TD STYLE="vertical-align: top; width: 13%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Additional warrant shares issued due to anti-dilution provisions of warrants acquired in June 25, 2008 transaction</TD>
    <TD STYLE="width: 13%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Total</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Special Situations Fund III QP, L.P.</TD>
    <TD STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">160,000 (1)</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">145,200</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">70,139</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">375,339</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Special Situations Private Equity Fund, L.P.</TD>
    <TD STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">160,000</TD>
    <TD STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">160,000 (1)</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">145,200</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">70,139</TD>
    <TD STYLE="vertical-align: top; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">375,339</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Arnold Schumsky</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">24,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">24,000 (1)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">26,400</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">12,753</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: right">63,153</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">TOTAL</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">344,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">344,000 (1)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">316,800</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">153,031</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: right">813,831</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">* All information
set forth herein gives effect to a 1 for 25 reverse stock split on December 11, 2008.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>The warrants issued in the February 1, 2007 transaction expired,
                                                           according to the terms of the warrants, on February 1, 2012 without
                                                           being exercised and therefore, the shares underlying the February
                                                           1, 2007 warrants are not being registered in this prospectus .</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">USE OF PROCEEDS</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We will not receive any proceeds from the sale
or other disposition of our common stock by selling stockholders.&nbsp;We may receive proceeds from the exercise of warrants.&nbsp;
We intend to use the proceeds from the exercise of warrants, if any, for working capital.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">MARKET FOR THE SECURITIES</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our common stock is quoted on the OTCQB under
the symbol &ldquo;PEYE.&rdquo;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt"><B>Risks Related to Our Business</B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"> An
                                                                                                               investment in our
                                                                                                               common stock involves
                                                                                                               a high degree of
                                                                                                               risk. Before making
                                                                                                               an investment decision,
                                                                                                               you should give
                                                                                                               careful consideration
                                                                                                               to the following
                                                                                                               risk factors, in
                                                                                                               addition to the
                                                                                                               other information
                                                                                                               included in our
                                                                                                               Annual Report on
                                                                                                               Form&nbsp;10-K
                                                                                                               for the year ended
                                                                                                               June&nbsp;30, 2012
                                                                                                               filed
                                                                                                               with the Securities
                                                                                                               and Exchange Commission
                                                                                                               on October 15,
                                                                                                               2012 and amended
                                                                                                               on October 26,
                                                                                                               2012 to furnish
                                                                                                               Exhibit 101 to
                                                                                                               the Form 10-K,
                                                                                                               which contains
                                                                                                               the XBRL
                                                                                                               (eXtensible Business
                                                                                                               Reporting Language)
                                                                                                               Interactive Data
                                                                                                               File for the financial
                                                                                                               statements and
                                                                                                               notes included
                                                                                                               thereto.
                                                                                                               If any of the following
                                                                                                               risks actually
                                                                                                               occur, our business,
                                                                                                               financial condition
                                                                                                               or results of operations
                                                                                                               could be materially
                                                                                                               and adversely affected
                                                                                                               and you may lose
                                                                                                               some or all of
                                                                                                               your investment. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>The current worldwide economic
downturn could have a negative impact on our business, operating results and financial condition.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">If the economic downturn continues,
our customers may delay, reduce or cancel their purchases of our products, particularly if they or their customers have difficulty
obtaining credit, which could then reduce our revenues. The economic downturn could increase competition which could have the effect
of reducing our prices. We could incur losses if a customer&rsquo;s business fails and they are unable to pay us, or pay us on
a timely basis. Likewise, if our suppliers have difficulty in obtaining credit or in operating their businesses, they may not be
able to provide us with the materials we use to manufacture our products. These actions could result in reduced revenues and higher
operating costs, and have an adverse effect on our results of operations and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We rely on a small number of customers
who may not consistently purchase our products in the future and if we lose any one of these customers, our revenues may decline.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">In the fiscal year ended June&nbsp;30,
2012, our two largest customers represented approximately 34% and 22%, respectively, of our total revenues. In the fiscal year
ended June&nbsp;30, 2011, our three largest customers represented approximately 24%, 22% and 17%, respectively, of our total revenues.
No other customer accounted for more than 10% of our revenues during those periods. At June&nbsp;30, 2012, receivables from our
two largest customers were 31% and 27%, respectively, of the total accounts receivable.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">In the future, a small number of customers
may continue to represent a significant portion of our total revenues in any given period. These customers may not consistently
purchase our products at a particular rate over any subsequent period. A loss of any of these customers could adversely affect
our revenues.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>Negative economic conditions increase
the risk that we could suffer unrecoverable losses on our customers&rsquo; accounts receivable which would adversely affect our
financial results.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">At June&nbsp;30, 2012, receivables from
our two largest customers were 31% and 27%, respectively, of the total accounts receivable. While we believe we have a varied customer
base and have experienced strong collections in the past, if current economic conditions fail to improve we may experience changes
in our customer base, including reductions in purchasing commitments, which could also have a material adverse effect on our revenues
and liquidity. We have not purchased insurance on our accounts receivable balances.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We rely heavily upon the talents
of our Chief Executive Officer, the loss of whom could severely damage our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Our performance depends to a large extent
on a small number of key scientific, technical, managerial and marketing personnel. In particular, we believe our success is highly
dependent upon the services and reputation of our Chief Executive Officer, Dr.&nbsp;Joseph N. Forkey. The loss of Dr.&nbsp;Forkey&rsquo;s
services could severely damage our business. Dr.&nbsp;Forkey provides highly valuable contributions to our capabilities in optical
instrument development, in management of new technology and in potentially significant longer-term initiatives in biophysics and
biomedical instrumentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We must continue to be able to
attract employees with the scientific and technical skills that our business requires and if we are unable to attract and retain
such individuals, our business could be severely damaged.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Our ability to attract employees with
a high degree of scientific and technical talent is crucial to the success of our business. There is intense competition for the
services of such persons, and we cannot guarantee that we will be able to attract and retain individuals possessing the necessary
qualifications. If we cannot attract such individuals, we may not be able to produce our products and our business could be damaged.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We are subject to a high degree
of regulatory oversight and, if we do not continue to receive the necessary regulatory approvals, our revenues may decline.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">The FDA allows us to market the medical
products we currently sell in the United States. However, prior FDA approval may be required before we can market additional medical
products that we may develop in the future. We may also seek to sell current or future medical products in a manner that requires
us to obtain FDA permission to market such products. We may also require the regulatory approval or license of other federal, state
or local agencies or comparable agencies in other countries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">We may lose the FDA&rsquo;s permission
to market our current products or may not obtain the necessary regulatory permission, approvals or licenses for the marketing of
any of our future products. Also, we cannot predict the impact on our business of FDA regulations or determinations arising from
future legislation or administrative action. If we lose the FDA&rsquo;s permission to market our current products or we do not
obtain regulatory permission to market our future products, our revenues may decline and our business may be harmed.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We face risks inherent in product
development and production under fixed price purchase orders and these purchase orders may not be profitable over time.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">A portion of our business has been devoted
to research, development and production under fixed price purchase orders. For our purposes, a fixed price purchase order is any
purchase order under which we will provide products or services for a fixed price over an extended period of time, usually six
months or longer. Fixed price purchase orders represented approximately 25% to 50% of our total revenues during the last several
years. We expect that revenues from fixed price purchase orders will continue to represent a significant portion of our total revenues
in future fiscal years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Because they involve performance over
time, we cannot predict with certainty the expenses involved in meeting our obligations under fixed price purchase orders. Therefore,
we can never be sure at the time we enter into any single fixed price purchase order that such purchase order will be profitable
for us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>Third parties may infringe on
our intellectual property and, as a result, we could incur significant expense in protecting our patents or not have sufficient
resources to protect them.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">We utilize a number of licensed patents
that are important to our business. In July&nbsp;2011, we entered into an asset purchase agreement with Intuitive Surgical Operations,&nbsp;Inc.,
in which we received $2.5 million in connection with the sale of certain intellectual property. Pursuant to the agreement, we agreed
to assign to Intuitive Surgical all of our currently issued and non-expired patents and pending patent applications and, in return,&nbsp;Intuitive
Surgical agreed to grant to us a royalty-free, worldwide license to these patents in fields outside of medical robotics.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Although we are not currently aware
of any past or present infringements of our patents, we plan, jointly with Intuitive Surgical, to protect these patents from infringement
and obtain additional patents whenever feasible. To this end, we have obtained confidentiality agreements from our employees and
consultants and others who have access to the design of our products and other proprietary information. Protecting and obtaining
patents, however, is both time consuming and expensive. We therefore may not have the resources necessary to assert all potential
patent infringement claims or pursue all patents that might be available to us. If our competitors or other third parties infringe
on our patents, our business may be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>Third parties may claim that we
have infringed on their patents and, as a result, we could be prohibited from using all or part of any technology used in our products.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Should third parties claim a proprietary
right to all or part of any technology that we use in our products, such a claim, regardless of its merit, could involve us in
costly litigation. If successful, such a claim could also result in us being unable to freely use the technology that was the subject
of the claim, or sell products embodying such technology. If we engage in litigation, our expenses may increase and our business
may be harmed. If we are prohibited from using a particular technology in our products, our revenues may decline and our business
may be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We depend on the availability
of certain key supplies and services that are available from only a few sources and if we experience difficulty with a supplier,
we may have difficulty finding alternative sources of these supplies or services.</I></B></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"> We
                                                                                              require certain key supplies to
                                                                                              develop and manufacture our products;
                                                                                              in particular, we require precision
                                                                                              grade optical glass, which is available
                                                                                              from only a few sources, each of
                                                                                              which is located outside the United
                                                                                              States. Additionally, we rely on
                                                                                              outside vendors to grind and polish
                                                                                              certain of our lenses and other
                                                                                              optical components, such as prisms
                                                                                              and windows. Based upon our ordering
                                                                                              experience to date, we believe the
                                                                                              materials and services required
                                                                                              for the production of our products
                                                                                              are currently available in sufficient
                                                                                              quantities. Our requirements are
                                                                                              small relative to the total supply,
                                                                                              and we are not currently encountering
                                                                                              problems with availability. However,
                                                                                              this does not mean that we will
                                                                                              continue to have timely access to
                                                                                              adequate supplies of essential materials
                                                                                              and services in the future or that
                                                                                              supplies of these materials and
                                                                                              services will be available on satisfactory
                                                                                              terms when the need arises. Our
                                                                                              business could be severely damaged
                                                                                              if we become unable to procure these
                                                                                              essential materials and services
                                                                                              in adequate quantities and at acceptable
                                                                                              prices. </P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">From time to time, subcontractors may
produce certain of our products for us, and our business is subject to the risk that these subcontractors fail to make timely
delivery. Our products and services are also from time to time used as components of the products and services of other manufacturers.
We are therefore subject to the risk that manufacturers that integrate our products or services into their own products or services
are unable to acquire essential supplies and services from third parties in a timely fashion. If this occurs, we may not be able
to deliver our products on a timely basis and our revenues may decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>Our customers may claim that the
products we sold them were defective and if our insurance is not sufficient to cover a claim, we would be liable for the excess.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"> Like any manufacturer, we are and
always have been exposed to liability claims resulting from the use of our products. We maintain product liability insurance to
cover us in the event of liability claims, and as of November 29, 2012, no such claims have been asserted or threatened against
us. However, our insurance may not be sufficient to cover all possible future product liabilities. </P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We would be liable if our business
operations harmed the environment and a failure to maintain compliance with environmental laws could severely damage our business.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Our operations are subject to a variety
of federal, state and local laws and regulations relating to the protection of the environment. From time to time, we use hazardous
materials in our operations. Although we believe that we are in compliance with all applicable environmental laws and regulations,
our business could be severely damaged by any failure to maintain such compliance.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>Our quarterly financial results
vary quarter to quarter and depend on many factors. As a result, we cannot predict with a high degree of certainty our operating
results in any particular fiscal quarter.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our quarterly operating results may vary significantly
depending upon factors such as:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">timing of completion of significant customer orders;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing and amount of our research and development expenditures;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the costs of initial product production in connection with new products;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing of new product introductions&mdash;both by us and by our
competitors;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing and level of market acceptance of new products or enhanced
versions of our existing products;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">our ability to retain existing customers and customers&rsquo; continued
demand for our products and services;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">our customers&rsquo; inventory levels, and levels of demand for our
customers&rsquo; products and services; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">competitive pricing pressures.</FONT></TD></TR></TABLE>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We may not be able to grow or sustain revenues
or achieve or maintain profitability on a quarterly or annual basis and levels of revenue and/or profitability may vary from one
such period to another.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Some of our competitors are large, well-financed
companies who have research and marketing capabilities that are superior to ours.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The industries in which we operate are highly
competitive. Many of our existing and potential competitors have greater financial resources and manufacturing capabilities, more
established and larger marketing and sales organizations and larger technical staffs than we have. Other companies, some with greater
experience in the optics, semiconductor or medical products industries, are seeking to produce products and services that compete
with our products and services.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Risks Related to Our Stock</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Trading in our common stock is limited
and the price of our common stock may be subject to substantial volatility.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our common stock was delisted from the NASDAQ
Capital Market at the opening of business on December&nbsp;27, 2005. Our common stock (OTCQB:&nbsp;PEYE) is quoted on OTCQB, the
OTC market tier for companies that report to the SEC. We expect our common stock to continue to be quoted on the OTCQB for the
foreseeable future. Broker-dealers may decline to trade in OTCQB stocks given the market for such securities is often limited,
the stocks are more volatile and the risk to investors is greater. These factors may reduce the potential market for our common
stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell
shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Additionally, the price of our common stock
may be volatile as a result of a number of factors, including, but not limited to, the following:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">our ability to successfully conceive and to develop new products and
services to enhance the performance characteristics and methods of manufacture of existing products;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">our ability to retain existing customers
and customers&rsquo; continued demand for our products and services;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing of our research and development
expenditures and of new product introductions;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing and level of acceptance of
new products or enhanced versions of our existing products; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">price and volume fluctuations in the stock market at large which do
not relate to our operating performance.</FONT></TD></TR></TABLE>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>&ldquo;Penny stock&rdquo; rules&nbsp;may
make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and
sell our securities.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Trading in our securities is subject
to the SEC&rsquo;s &ldquo;penny stock&rdquo; rules&nbsp;and it is anticipated that trading in our securities will continue to be
subject to the penny stock rules&nbsp;for the foreseeable future. The SEC has adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules&nbsp;require
that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior
to the sale, make a special written suitability determination for the purchaser and receive the purchaser&rsquo;s written agreement
to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving
a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock
market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements
may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our
securities and consequently adversely affect the market price for our securities.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"><B><I>We are contractually obligated
to issue shares in the future, diluting your interest in us.</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify"> As of September&nbsp;30, 2012, there
were 392,587 shares of our common stock issuable upon exercise of stock options outstanding, at a weighted average exercise price
of $4.56 per share. A total of 117,200 shares and 43,698 shares, respectively, of our common stock, including shares rolled forward
from the 1997 Incentive Plan, are reserved for issuance under our 2011 and 2006 Equity Incentive Plans as of September&nbsp;30,
2012. As of September 30, 2012, there are also warrants outstanding for the issuance of an aggregate of an additional 2,708,752
shares of our common stock, at a weighted average exercise price of $1.21 per share. The foregoing information gives effect to
a 1 for 25 reverse stock split, effective December&nbsp;11, 2008. Moreover, we expect to issue additional shares and options to
purchase shares of our common stock to compensate employees, consultants and directors, and we may issue additional shares to
raise capital. Any such issuances will have the effect of further diluting the interest of the holders of our securities. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This prospectus contains forward-looking statements
that involve risks and uncertainties. &nbsp;You should not place undue reliance on these forward-looking statements. &nbsp;Our
actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the
reasons described in our &ldquo;Risk Factors&rdquo; section. Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update
any of the forward-looking statements after the date of this prospectus to conform these statements to actual results or to changes
in our expectations, except as required by law.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>USE OF PROCEEDS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">This prospectus relates to shares of our common
stock that may be offered and sold from time to time by certain selling stockholders.&nbsp;We will not receive proceeds from the
sale or other disposition of shares of common stock being sold by our selling stockholders.&nbsp;However, we may receive proceeds
from the exercise of warrants. We cannot predict when or if the warrants will be exercised. It is possible that the warrants may
expire and may never be exercised. If we receive proceeds from the exercise of warrants, we intend to use the proceeds for working
capital.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SELLING SECURITY HOLDERS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Based upon information available to us as of
October 22, 2012, the following table sets forth the names of the selling stockholders, the number of shares owned, the number
of shares registered by this registration statement and the number and percent of outstanding shares that the selling stockholders
will own, assuming all of the shares are sold. The information provided in the table and discussions below has been obtained from
the selling stockholders. The selling stockholders may have sold, transferred or otherwise disposed of, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the date on which it provided the information regarding the shares
beneficially owned, all or a portion of the shares of common stock beneficially owned in transactions exempt from the registration
requirements of the Securities Act of 1933.&nbsp;As used in this prospectus, &ldquo;selling stockholder&rdquo; includes donees,
pledgees, transferees or other successors-in-interest selling shares received from the named selling stockholder as a gift, pledge,
distribution or other transfer.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Beneficial ownership is determined in accordance
with Rule&nbsp;13d-3(d)&nbsp;promulgated by the Commission under the Securities Exchange Act of 1934. Unless
otherwise noted, each person or entity identified possesses sole voting and investment power with respect to the shares, subject
to community property laws where applicable.</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; width: 53%; border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">Name&nbsp;of&nbsp;Selling&nbsp;Security&nbsp;Holder</TD>
    <TD STYLE="width: 9%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; background-color: White; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Beneficial<BR>
Ownership Before Offering (1), (3)</TD>
    <TD STYLE="width: 10%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; background-color: White; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Percentage of Outstanding Shares Owned Prior to Offering (2)</TD>
    <TD STYLE="width: 8%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; background-color: White; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Number of Shares Offered (3)</TD>
    <TD STYLE="vertical-align: bottom; width: 11%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; background-color: White; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Number of Shares Owned After Offering (4)</TD>
    <TD STYLE="vertical-align: bottom; width: 9%; border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; background-color: White; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Percentage of Shares Owned After Offering (4)</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Allan, David G. (5)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0&nbsp;&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Alpha Capital Anstalt (6)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">472,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">11.18%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">472,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0&nbsp;&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Arno, Elizabeth (7)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0&nbsp;&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Elizabeth Arno cust FBO George Arno UTMA (8)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD NOWRAP STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Elizabeth Arno cust FBO Melissa Arno UTMA (9)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">DAFNA LifeScience Market Neutral, Ltd. (10)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">132,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">3.24%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">132,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">DAFNA LifeScience, Ltd. (11)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,889</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,889</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">DAFNA LifeScience Select, Ltd. (12)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">340,000</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">8.16%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">340,000</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> DeBare,
    Charles A .(13)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">94,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.32%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">94,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"> DeBare,
    Mary A . (14)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">94,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.32%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">94,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Forkey, Richard E. (15)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">262,326</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">6.43%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">215,103</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">5.24%</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Green, Mark (16)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Gutfreund, John Peter (17)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Iroquois Master Fund, Ltd. (18)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">JBA Investments LLC (19)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Joseph N. Forkey and Heather C. Forkey JTTEN (20)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">83,401</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">2.04%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">37,780</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">45,621</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.11%</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Karfunkel, George (21)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Kozersky, Lara (22)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Linda Gale Sampson Trust #2 (23)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Loewen, Ondaatje, McCutcheon USA LTD (24)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">194,446</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.83%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">194,446</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Major, Donald A. (25)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">80,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.97%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">33,000</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Matluck, Robert (26)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">MHW Partners, L.P. (27)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">377,780</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">9.03%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">377,780</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Miles, Richard B. (28)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">32,491</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">13,600</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">MJA Investments LLC (29)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD NOWRAP STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">NBCN INC. ITF AC 5VE158E GARRETT HERMAN (909369) (30)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">56,668</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.40%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">56,668</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD NOWRAP STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Next Generation TS FBO Andrew Arno IRA 1663 (31)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">O'Connor, Pamela F. (32)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Riordan, Susan (33)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Saltiel, Howard (34)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Sarachek, Russell (35)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">SAS Trust #1 (36)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Schumsky, Arnold (37)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">223,069</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">5.42%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">204,821</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">18,248</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Smith, Jr., William W. (38)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1.17%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">47,223</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Special Situations Fund III QP, L.P. (39)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1,414,230</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">30.73%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">1,414,230</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Special Situations Private Equity Fund, L.P. (40)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">375,339</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">8.99%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">375,339</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Unterberg, Thomas I. (41)</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">4.60%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">188,891</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">*</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">* Percentage of shares owned does not exceed
one percent.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">(1)&nbsp;</TD>
    <TD STYLE="text-align: justify; padding-left: 0pt; text-indent: 0pt; width: 95%"> This column includes common stock beneficially
    owned and shares that may be acquired upon exercise of warrants, including shares being registered by this prospectus. For
    the purposes of this table, we have not assumed the limitations on exercise set forth in certain warrants, which limit the
    number of shares of common stock that the holder, together with all other shares of common stock beneficially owned by such
    person, does not exceed 4.999% of the total outstanding shares of common stock. </TD></TR>
</TABLE>


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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">(2)&nbsp;</TD>
    <TD STYLE="text-align: justify; padding-left: 0pt; text-indent: 0pt; width: 95%">Based on 4,029,134 shares outstanding as of October 22, 2012. Amounts listed have been adjusted,
if necessary, to reflect a 1-for-25 reverse split, effective December&nbsp;11, 2008.</TD></TR>
</TABLE>


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

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

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">(3) </TD>
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 95%">Includes shares that may be issued upon exercise of warrants.</TD></TR>
</TABLE>


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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">(4)&nbsp;</TD>
    <TD STYLE="text-align: justify; width: 95%"> These numbers assume the selling stockholders sell all of their shares being
    registered in this prospectus, including shares exercisable upon the exercise of warrants which are being registered in this
    prospectus, and they do not sell any of the other common stock they own on October 22, 2012 that is not included in this prospectus. </TD></TR>
</TABLE>


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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">(5)</TD>
    <TD STYLE="text-align: justify; width: 95%">David G. Allan has sole voting and investment power over the shares. On September 28, 2012, Mr. Allan purchased 111,112 shares
of our common stock, and warrants to purchase up to 77,779 shares of our common stock at an exercise price of $1.25 per share,
subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28,
2017. The shares being registered for Mr. Allan also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">(6)</TD>
    <TD STYLE="text-align: justify; width: 95%">Alpha Capital Anstalt is a <FONT STYLE="background-color: White">fund.</FONT>
Konrad Ackermann has voting and investment power over the shares. On September 28, 2012, Alpha Capital Anstalt purchased 277,778
shares of our common stock, and warrants to purchase up to 194,445 shares of our common stock at an exercise price of $1.25 per
share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September
28, 2017. The shares being registered for Alpha Capital Anstalt also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">(7)</TD>
    <TD STYLE="text-align: left; width: 95%">Elizabeth Arno has sole voting and investment power over the shares. On September 28, 2012, Ms. Arno purchased 27,778 shares of
our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per share, subject
to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017.
The shares being registered for Ms. Arno also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(8)</TD>
    <TD STYLE="width: 95%; text-align: justify">Elizabeth Arno cust FBO George Arno UTMA is a fund. Ms. Arno has sole voting and
    investment power over the shares. On September 28, 2012, Ms. Arno purchased, on behalf of Elizabeth Arno cust FBO George Arno
    UTMA, 5,556 shares of our common stock, and warrants to purchase up to 3,890 shares of our common stock at an exercise price
    of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration
    date of September 28, 2017. The shares being registered for Elizabeth Arno cust FBO George Arno UTMA also includes shares
    exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(9)</TD>
    <TD STYLE="width: 95%; text-align: justify">Elizabeth Arno cust FBO Melissa Arno UTMA is a fund. Ms. Arno has sole voting and
    investment power over the shares. On September 28, 2012, Ms. Arno purchased, on behalf of Elizabeth Arno cust FBO Melissa
    Arno UTMA, 5,556 shares of our common stock, and warrants to purchase up to 3,890 shares of our common stock at an exercise
    price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an
    expiration date of September 28, 2017. The shares being registered for Elizabeth Arno cust FBO Melissa Arno UTMA also
    includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
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    <TD STYLE="width: 5%">(10)</TD>
    <TD STYLE="width: 95%; text-align: justify">DAFNA LifeScience Market Neutral, Ltd. is a Cayman Islands exempted company. DAFNA Capital Management, LLC is the investment adviser
of DAFNA LifeScience Market Neutral. DAFNA Capital Management, in its capacity as investment adviser to DAFNA LifeScience Market
Neutral, may be deemed to be the beneficial owner of the shares owned by DAFNA LifeScience Market Neutral, as in its capacity
as investment adviser, it has the power to dispose, direct the disposition of, and vote the shares owned by DAFNA LifeScience
Market Neutral. Nathan Fischel, in his capacity as managing member of DAFNA Capital Management, may be deemed to beneficially
own the securities owned by DAFNA LifeScience Market Neutral. On September 28, 2012, DAFNA LifeScience Market Neutral purchased
77,778 shares of our common stock, and warrants to purchase up to 54,445 shares of our common stock at an exercise price of $1.25
per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September
28, 2017. The shares being registered for DAFNA LifeScience Market Neutral also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(11)</TD>
    <TD STYLE="width: 95%; text-align: justify">DAFNA LifeScience, Ltd. is a Cayman Islands exempted company. DAFNA Capital Management, LLC is the investment adviser of DAFNA
LifeScience. DAFNA Capital Management, in its capacity as investment adviser to DAFNA LifeScience, may be deemed to be the beneficial
owner of the shares owned by DAFNA LifeScience, as in its capacity as investment adviser, it has the power to dispose, direct
the disposition of, and vote the shares owned by DAFNA LifeScience. Nathan Fischel, in his capacity as managing member of DAFNA
Capital Management, may be deemed to beneficially own the securities owned by DAFNA LifeScience. On September 28, 2012, DAFNA
LifeScience purchased 111,111 shares of our common stock, and warrants to purchase up to 77,778 shares of our common stock at
an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached,
and an expiration date of September 28, 2017. The shares being registered for DAFNA LifeScience also includes shares exercisable
upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(12)</TD>
    <TD STYLE="width: 95%; text-align: justify">DAFNA LifeScience Select, Ltd. is a Cayman Islands exempted company. DAFNA Capital Management, LLC is the investment adviser of
DAFNA LifeScience Select. DAFNA Capital Management, in its capacity as investment adviser to DAFNA LifeScience Select, may be
deemed to be the beneficial owner of the shares owned by DAFNA LifeScience Select, as in its capacity as investment adviser, it
has the power to dispose, direct the disposition of, and vote the shares owned by DAFNA LifeScience Select. Nathan Fischel, in
his capacity as managing member of DAFNA Capital Management, may be deemed to beneficially own the securities owned by DAFNA LifeScience
Select. On September 28, 2012, DAFNA LifeScience Select purchased 200,000 shares of our common stock, and warrants to purchase
up to 140,000 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if
certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for DAFNA
LifeScience Select also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(13)</TD>
    <TD STYLE="width: 95%; text-align: justify">Charles A. DeBare has voting and investment power over the shares. On September
    28, 2012, Mr. DeBare purchased 55,556 shares of our common stock, and warrants to purchase up to 38,890 shares of our
    common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets
    are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. DeBare also includes
    shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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    <TD STYLE="width: 5%">(14)</TD>
    <TD STYLE="width: 95%; text-align: justify">Mary A. DeBare has voting and investment power over the shares. On September
    28, 2012, Ms. DeBare purchased 55,556 shares of our common stock, and warrants to purchase up to 38,890 shares of our
    common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets
    are reached, and an expiration date of September 28, 2017. The shares being registered for Ms. DeBare also includes
    shares exercisable upon exercise of warrants.</TD></TR>
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    <TD STYLE="width: 5%">(15)</TD>
    <TD STYLE="width: 95%; text-align: justify">Richard E. Forkey holds the executive position of Advisor to the Chief Executive Officer and is a member of our Board of Directors.
He also served as our Chief Executive Officer until February 8, 2011. Mr. Forkey has sole voting and investment power over the
shares. On September 28, 2012, Mr. Forkey purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445 shares
of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price
targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Forkey also includes shares
exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(16)</TD>
    <TD STYLE="width: 95%; text-align: justify">Mark Green has  voting and investment power over the shares. On September 28,
2012, Mr. Green purchased 5,556 shares of our common stock, and warrants to purchase up to 3,890 shares of our common stock at
an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached,
and an expiration date of September 28, 2017. The shares being registered for Mr. Green also includes shares exercisable upon
exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(17)</TD>
    <TD STYLE="width: 95%; text-align: justify">John Peter Gutfreund has sole voting and investment power over the shares. On September 28, 2012, Mr. Gutfreund purchased 11,112
shares of our common stock, and warrants to purchase up to 7,779 shares of our common stock at an exercise price of $1.25 per
share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September
28, 2017. The shares being registered for Mr. Gutfreund also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(18)</TD>
    <TD STYLE="width: 95%; text-align: justify">Iroquois Master Fund, Ltd. is a Delaware limited liability company. <FONT STYLE="background-color: White">Joshua
    Silverman has voting and investment control over the shares held by Iroquois Master Fund.</FONT> On September 28, 2012,
    Iroquois     Master Fund purchased 111,112 shares of our common stock, and warrants to purchase up to 77,779 shares of our
    common stock     at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price
    targets are reached,     and an expiration date of September 28, 2017. The shares being registered for Iroquois Master Fund
    also includes shares exercisable     upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(19)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">JBA Investments LLC is a limited liability company. Andy Arno has voting and investment control over the shares held by JBA Investments. On September 28, 2012, JBA Investments purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for JBA Investments also includes shares exercisable upon exercise of warrants. JBA Investments is an affiliate of a registered broker-dealer. JBA Investments has certified to us that it bought the securities in the offering in the ordinary course of business, and at time of the purchase of the securities to be resold pursuant to this prospectus, it had no agreements or understandings, directly or indirectly, with any person to distribute the securities.</TD></TR>
</TABLE>


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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(20)</TD>
    <TD STYLE="width: 95%; text-align: justify">Dr. Joseph N. Forkey and Heather C. Forkey share voting and investment control over the shares. Dr. Forkey is Chairman of our
Board of Directors and serves as our Chief Executive Officer, President and Treasurer. On September 28, 2012, Dr. and Mrs. Forkey
jointly purchased 22,223 shares of our common stock, and warrants to purchase up to 15,557 shares of our common stock at an exercise
price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration
date of September 28, 2017. The shares being registered for Joseph N. Forkey and Heather C. Forkey JTTEN also includes shares
exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(21)</TD>
    <TD STYLE="width: 95%; text-align: justify">George Karfunkel has  voting and investment power over the shares. On September
28, 2012, Mr. Karfunkel purchased 111,112 shares of our common stock, and warrants to purchase up to 77,779 shares of our common
stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are
reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Karfunkel also includes shares exercisable
upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(22)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">Lara Kozersky has sole voting and investment power over the shares. On September 28, 2012, Ms. Kozersky purchased 5,556 shares of our common stock, and warrants to purchase up to 3,890 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Ms. Kozersky also includes shares exercisable upon exercise of warrants. Ms. Kozersky is an affiliate of a registered broker-dealer. Ms. Kozersky has certified to us that she bought the securities in the offering in the ordinary course of business, and at time of the purchase of the securities to be resold pursuant to this prospectus, she had no agreements or understandings, directly or indirectly, with any person to distribute the securities.</TD></TR>
</TABLE>


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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(23)</TD>
    <TD STYLE="width: 95%; text-align: justify">Linda Gale Sampson Trust #2 is a trust fund. Ann G. Mandelman is the trustee of the fund, and has voting and investment control
over the shares held by Linda Gale Sampson Trust #2. On September 28, 2012, Linda Gale Sampson Trust #2 purchased 27,778 shares
of our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per share,
subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28,
2017. The shares being registered for Linda Gale Sampson Trust #2 also includes shares exercisable upon exercise of warrants.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(24)</TD>
    <TD STYLE="width: 95%; text-align: justify">Loewen, Ondaatje, McCutcheon USA LTD served as our
    exclusive placement agent for the September 28, 2012 offering. In addition to the payment of certain cash fees upon
    closing     of     the offering, on September 28, 2012, we issued a warrant to Loewen, Ondaatje,
    McCutcheon     USA LTD to     purchase up to 194,446 shares of common stock at an
    exercise price of     $0.95 per share subject     to adjustment and a call provision if certain
    market price targets are     reached, and an expiration date of September 28,     2017. The shares being registered for
    Loewen, Ondaatje, McCutcheon USA     LTD are shares exercisable under the exercise of the     warrant.</TD></TR>
</TABLE>




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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(25)</TD><TD STYLE="text-align: justify; width: 95%">Donald A. Major is our Executive Vice President for Corporate Development and a member of our Board
of Directors. Mr. Major has sole voting and investment power over the shares. On September 28, 2012, Mr. Major purchased 27,778
shares of our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per
share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September
28, 2017. The shares being registered for Mr. Major also includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(26)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">Robert Matluck has sole voting and investment power over the shares. On September 28, 2012, Mr. Matluck purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Matluck also includes shares exercisable upon exercise of warrants. Mr. Matluck is a registered broker-dealer.</TD></TR>
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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(27)</TD><TD STYLE="text-align: justify; width: 95%">MHW Partners, L.P. is a limited partnership. Peter
Woodward is the managing member and general partner of MHW Partners and in such capacity, Mr. Woodward holds the power to vote
and direct the disposition of all shares of common stock owned by MHW Partners. On September 28, 2012, MHW Partners purchased
222,223 shares of our common stock, and warrants to purchase up to 155,557 shares of our common stock at an exercise price of
$1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date
of September 28, 2017. The shares being registered for MHW Partners also includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(28)</TD><TD STYLE="text-align: justify; width: 95%">Richard B. Miles is a member of our Board of Directors. Mr. Miles has sole voting and investment
power over the shares. On September 28, 2012, Mr. Miles purchased 11,112 shares of our common stock, and warrants to purchase up
to 7,779 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain
market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Miles also
includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(29)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">MJA Investments LLC is a limited liability company. Andy Arno has voting and investment control over the shares held by MJA Investments. On September 28, 2012, MJA Investments purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for MJA Investments also includes shares exercisable upon exercise of warrants. MJA Investments is an affiliate of a registered broker-dealer. MJA Investments has certified to us that it bought the securities in the offering in the ordinary course of business, and at time of the purchase of the securities to be resold pursuant to this prospectus, it had no agreements or understandings, directly or indirectly, with any person to distribute the securities.</TD></TR>
</TABLE>


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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(30)</TD><TD STYLE="text-align: justify; width: 95%">NBCN INC. ITF AC 5VE158E GARRETT HERMAN (909369) is
                               <FONT STYLE="background-color: White">a fund. Mr. Herman has voting and investment control over
                               the shares held by NBCN INC. ITF AC 5VE158E GARRETT HERMAN (909369).</FONT> On September 28, 2012,
                               NBCN INC. ITF AC 5VE158E GARRETT HERMAN (909369) purchased 33,334 shares of our common stock, and
                               warrants to purchase up to 23,334 shares of our common stock at an exercise price of $1.25 per
                               share, subject to adjustment and a call provision if certain market price targets are reached,
                               and an expiration date of September 28, 2017. The shares being registered for NBCN INC. ITF AC
                               5VE158E GARRETT HERMAN (909369) also includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(31)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">Next Generation TS FBO Andrew Arno IRA 1663 is a fund. Andy Arno has voting and investment control over the shares held by Next Generation TS FBO Andrew Arno IRA 1663. On September 28, 2012, Next Generation TS FBO Andrew Arno IRA 1663 purchased 111,112 shares of our common stock, and warrants to purchase up to 77,779 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Next Generation TS FBO Andrew Arno IRA 1663 also includes shares exercisable upon exercise of warrants. Next Generation TS FBO Andrew Arno IRA 1663 is registered broker-dealer.</TD></TR>
</TABLE>


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

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(32)</TD><TD STYLE="text-align: justify; width: 95%">Pamela F. O'Connor has  voting and investment power
over the shares. On September 28, 2012, Ms. O'Connor purchased 111,112 shares of our common stock, and warrants to purchase up
to 77,779 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain
market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Ms. O'Connor also
includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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




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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; font-size: 10pt; width: 5%">(33)</TD>
    <TD STYLE="text-align: justify; font-size: 10pt; width: 95%">Susan Riordan has sole voting and investment power over the
    shares. On September 28, 2012, Ms. Riordan purchased 11,112 shares of our common stock, and warrants to purchase up to 7,779
    shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain
    market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Ms. Riordan
    also includes shares exercisable upon exercise of warrants. Ms.  Riordan is an affiliate of a registered broker-dealer. Ms.
    Riordan has certified to us that she bought the securities in the offering in the ordinary course of business, and at time of
    the purchase of the securities to be resold pursuant to this prospectus, she had no agreements or understandings, directly or
    indirectly, with any person to distribute the securities.</TD></TR>
</TABLE>


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

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(34)</TD><TD STYLE="text-align: justify; width: 95%">Howard Saltiel has  voting and investment power over
the shares. On September 28, 2012, Mr. Saltiel purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445
shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market
price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Saltiel also includes
shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(35)</TD><TD STYLE="text-align: justify; width: 95%">Russell Sarachek has  voting and investment power over
the shares. On September 28, 2012, Mr. Sarachek purchased 27,778 shares of our common stock, and warrants to purchase up to 19,445
shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market
price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Sarachek also includes
shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(36)</TD><TD STYLE="text-align: justify; width: 95%">SAS Trust #1 <FONT STYLE="background-color: White">is
                               a trust</FONT>. Scott A. Sampson has voting and investment control over the shares held by SAS
                               Trust #1. On September 28, 2012, SAS Trust #1 purchased 27,778 shares of our common stock, and
                               warrants to purchase up to 19,445 shares of our common stock at an exercise price of $1.25 per
                               share, subject to adjustment and a call provision if certain market price targets are reached,
                               and an expiration date of September 28, 2017. The shares being registered for SAS Trust #1 also
                               includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(37)</TD><TD STYLE="text-align: justify; width: 95%"> Arnold Schumsky has sole voting and investment power
                               over the shares. On September 28, 2012, Mr. Schumsky presented the outstanding principal balance
                               of his 10% Senior Secured Convertible Note, purchased in our June 25, 2008 financing transaction,
                               to us and agreed to exchange the $50,000 principal balance of his Note for participation in our
                               September 2012 financing transaction. Mr. Schumsky was issued units consisting of 55,555 shares
                               of common stock and warrants to purchase up to 38,889 shares of our common stock at an exercise
                               price of $1.25 per share, subject to adjustment and a call provision if certain market price targets
                               are reached, and an expiration date of September 28, 2017. On September 28, 2012, Mr. Schumsky
                               also purchased 27,779 shares of our common stock, and warrants to purchase up to 19,445 shares
                               of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision
                               if certain market price targets are reached, and an expiration date of September 28, 2017. The
                               shares being registered for Mr. Schumsky also includes shares exercisable upon exercise of warrants.
                               <BR><BR> We are also registering an aggregate of 39,153 shares issuable upon the exercise of warrants purchased by Mr.
                               Schumsky in the June 25, 2008 transaction, consisting of shares underlying the warrants purchased and additional warrant
                               shares issuable under the June 25, 2008 warrants due to the anti-dilution provisions of the warrants acquired in the June 25,
                               2008 transaction. On June 25, 2008, in conjunction with his purchase of the 10% Senior Secured Convertible Note, Mr. Schumsky
                               received warrants to purchase up to 26,400 shares of our common stock (adjusted to reflect a 1-for-25 reverse split,
                               effective December 11, 2008) at a price of $1.18 per share (adjusted to reflect the decrease in exercise price due to certain
                               anti-dilution provisions in the warrants) and expiration date of June 25, 2015, subject to extension. Additionally, we are
                               registering an additional 12,753 shares issuable under the June 25, 2008 warrants, with an exercise price of $1.18 and
                               expiration date of June 25, 2015, subject to extension, as a result of anti-dilution provisions in the warrants being
                               triggered in December 2010 and on September 28, 2012.   <BR> <BR> We are also registering 24,000 shares of common stock
                               purchased by Mr. Schumsky in the February 1, 2007 transaction. On February 1, 2007, Mr. Schumsky purchased 24,000 shares of
                               common stock (adjusted to reflect a 1-for-25 reverse split, effective December 11, 2008) and warrants to purchase common
                               stock. The warrants issued in the February 1, 2007 transaction expired, according to the terms of the warrants, on February
                               1, 2012 without being exercised and therefore, the shares underlying the February 1, 2007 warrants are not being registered
                               in this prospectus. <BR> </TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(38)</TD><TD STYLE="text-align: justify; width: 95%">William W. Smith, Jr. has  voting and investment power
over the shares. On September 28, 2012, Mr. Smith purchased 27,778 shares of our common stock, and warrants to purchase up to
19,445 shares of our common stock at an exercise price of $1.25 per share, subject to adjustment and a call provision if certain
market price targets are reached, and an expiration date of September 28, 2017. The shares being registered for Mr. Smith also
includes shares exercisable upon exercise of warrants.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(39)<BR>
</TD><TD STYLE="text-align: justify; width: 95%"> Special Situations Fund III QP, L.P. is a Delaware limited partnership.
     Messrs.      Austin W. Marxe and David M. Greenhouse are the controlling principals of AWM Investment Company, Inc., the
     general partner      of MGP Advisers Limited Partnership, the general partner of Special Situations Fund III QP. AWM
     Investment Company serves      as the investment adviser to Special Situations Fund III QP. On September 28, 2012, Special
     Situations Fund III QP purchased      611,112 shares of our common stock, and warrants to purchase up to 427,779 shares of
     our common stock at an exercise price      of $1.25 per share, subject to adjustment and a call provision if certain market
     price targets are reached, and an expiration      date of September 28, 2017. The shares being registered for Special
     Situations Fund III QP also includes shares exercisable      upon exercise of warrants.<BR>      <BR>      We are also
     registering an aggregate of 215,339 shares issuable upon the exercise of warrants purchased by Special Situations      Fund
     III QP in the June 25, 2008 transaction, consisting of shares underlying the warrants purchased and additional warrant
     shares issuable under the June 25, 2008 warrants due to the anti-dilution provisions of the warrants acquired in the June
     25, 2008 transaction. On June 25, 2008, in conjunction with its purchase of the 10% Senior Secured Convertible Note, Special
     Situations Fund III QP received warrants to purchase up to 145,200 shares of our common stock (adjusted to reflect a 1-for-25
     reverse split, effective December 11, 2008) at a price of $1.18 per share      (adjusted to reflect the decrease in exercise
     price due to certain anti-dilution provisions in the warrants) and expiration      date of June 25, 2015, subject to
     extension. Additionally, we are registering an additional 70,139 shares issuable under      the June 25, 2008 warrants, with
     an exercise price of $1.18 and expiration date of June 25, 2015, subject to extension, as      a result of anti-dilution
     provisions in the warrants being triggered in December 2010 and on September 28, 2012. <BR>      <BR>      We are also
     registering 160,000 shares of common stock purchased by Special Situations Fund III QP in the February 1, 2007
     transaction. On February 1, 2007, Special Situations Fund III QP purchased 160,000 shares of common stock (adjusted to
     reflect      a 1-for-25 reverse split, effective December 11, 2008) and warrants to purchase common stock. The warrants
     issued in the      February 1, 2007 transaction expired, according to the terms of the warrants, on February 1, 2012 without
     being exercised      and therefore, the shares underlying the February 1, 2007 warrants are not being registered in this
     prospectus. </TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(40)</TD><TD STYLE="text-align: justify; width: 95%"> Special Situations Private Equity Fund, L.P. is
                               a Delaware limited partnership. Messrs. Austin W. Marxe and David M. Greenhouse are the controlling
                               principals of AWM Investment Company, Inc., the general partner of MGP Advisers Limited Partnership,
                               the general partner of Special Situations Fund III QP. Messrs. Marxe and Greenhouse are also members
                               of MG Advisers L.L.C., the general partner of Special Situations Private Equity Fund. AWM Investment
                               Company serves as the investment adviser to Special Situations Fund III QP and Special Situations
                               Private Equity Fund.<BR>                                <BR>                                We registering an aggregate of
                               215,339 shares issuable upon the exercise of warrants purchased                                by Special Situations Private
                               Equity Fund in the June 25, 2008 transaction, consisting of shares                                underlying the warrants
                               purchased and additional warrant shares issuable under the June 25, 2008                                warrants due to the
                               anti-dilution provisions of the warrants acquired in the June 25, 2008 transaction.                                On June
                               25, 2008, in conjunction with its purchase of the 10% Senior Secured Convertible Note,                                Special
                               Situations Private Equity Fund received warrants to purchase up to 145,200 shares of our
                               common stock (adjusted to reflect a 1-for-25 reverse split, effective December 11, 2008) at a price of $1.18 per share
                               (adjusted to reflect the decrease in exercise price                                due to certain anti-dilution provisions in
                               the warrants) and expiration date of June 25, 2015,                                subject to extension. Additionally, we are
                               registering an additional 70,139 shares issuable under                                the June 25, 2008 warrants, with an
                               exercise price of $1.18 and expiration date of June 25, 2015,                                subject to extension, as a
                               result of anti-dilution provisions in the warrants being triggered in                                December 2010 and on
                               September 28, 2012. <BR>                                <BR>                                We are also registering 160,000
                               shares of common stock purchased by Special Situations Private                                Equity Fund in the February 1,
                               2007 transaction. On February 1, 2007, Special Situations Private                                Equity Fund purchased
                               160,000 shares of common stock (adjusted  to reflect a 1-for-25 reverse                                split, effective
                               December 11, 2008) and warrants to purchase common stock. The warrants issued                                in the February
                               1, 2007 transaction expired, according to the terms of the warrants, on February                                1, 2012
                               without being exercised and therefore, the shares underlying the February 1, 2007 warrants                                are
                               not being registered in this prospectus. </TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%">(41)</TD><TD STYLE="text-align: justify; width: 95%">Thomas I. Unterberg has sole voting and investment power over the shares. On September 28, 2012,
Mr. Unterberg purchased 111,112 shares of our common stock, and warrants to purchase up to 77,779 shares of our common stock at
an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached, and
an expiration date of September 28, 2017. The shares being registered for Mr. Unterberg also includes shares exercisable upon exercise
of warrants.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Material Relationships between the Selling Stockholder and
Our Company or Our Affiliates</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of October 22, 2012, in addition to the
information provided in the Prospectus Summary regarding the Transactions, in the past three years, we have had the following material
relationships with the selling stockholder or an affiliate of a selling stockholder:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Loewen,
Ondaatje, McCutcheon USA LTD served as our exclusive placement agent for the September 28, 2012 offering. Its ownership
consists of a warrant to purchase up to 194,446 shares of common stock issued as
part of its compensation.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>Directors and Officers </I></P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Joseph N. Forkey, jointly with his wife, Heather C. Forkey, is a selling
stockholder. Dr. Forkey is Chairman of our Board of Directors and serves as our Chief Executive Officer, President and Treasurer.
He has served our Company in various capacities since September 2003. We have also entered into a related-party transaction with
Dr. Forkey for a working capital loan in 2011. Please see &ldquo;<I>Certain Relationships and Related Transactions</I>&rdquo; for
more information.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 37.5pt; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif"> Richard
                                                                                                               E. Forkey, one
                                                                                                               of the selling
                                                                                                               stockholders, holds
                                                                                                               the executive position
                                                                                                               of Advisor to the
                                                                                                               Chief Executive
                                                                                                               Officer and is
                                                                                                               a member of our
                                                                                                               Board of Directors.
                                                                                                               He is the founder
                                                                                                               of our Company
                                                                                                               and the former
                                                                                                               Chief Executive
                                                                                                               Officer, President,
                                                                                                               and Treasurer of
                                                                                                               our Company. Mr.
                                                                                                               Forkey has been
                                                                                                               involved with our
                                                                                                               Company since our
                                                                                                               inception in 1982.
                                                                                                               We have also entered
                                                                                                               into a related-party
                                                                                                               transaction with
                                                                                                               Mr. Forkey regarding
                                                                                                               the lease of our
                                                                                                               main Gardner, Massachusetts
                                                                                                               facility from a
                                                                                                               company wholly-owned
                                                                                                               by Mr. Forkey.
                                                                                                               Please see &ldquo;<I>Certain
                                                                                                               Relationships and
                                                                                                               Related Transactions</I>&rdquo;
                                                                                                               for more information. </FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Donald A. Major, one of the selling stockholders, is our Executive
Vice President for Corporate Development. He has served as a member of our Board of Directors since 2005. </FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif"> Richard
                                                                                                               B. Miles, one of
                                                                                                               the selling stockholders,
                                                                                                               has served as a member
                                                                                                               of our Board of
                                                                                                               Directors since
                                                                                                               2005 </FONT> . </TD></TR></TABLE>



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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I></I></P>

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


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: center"><B>PLAN OF DISTRIBUTION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders, which as used herein
includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of
common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution
or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders may use any one or
more of the following methods when disposing of shares or interests therein:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">block trades in which the broker-dealer will attempt to sell the shares
as agent, but may position and resell a portion of the block as principal to facilitate the transaction;</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">an exchange distribution in accordance with the rules of the applicable
exchange;</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">privately negotiated transactions;</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif"> short
                                                                                                               sales effected
                                                                                                               after the date
                                                                                                               the registration
                                                                                                               statement of which
                                                                                                               this prospectus
                                                                                                               is a part is declared
                                                                                                               effective by the
                                                                                                               SEC; </FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">a combination of any such methods of sale; and</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">any other method permitted by applicable law.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders may, from time to
time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time
to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of
the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;), amending the list of selling stockholders to include
the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders
also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the sale of our common stock
or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders
may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge
the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate proceeds to the selling stockholders
from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions,
if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject,
in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the
proceeds from this offering. Upon any exercise of the warrants by payment of cash, however, we will receive the exercise price
of the warrants.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders also may resell all
or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet
the criteria and conform to the requirements of that rule.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The selling stockholders and any underwriters,
broker-dealers or agents that participate in the sale of the common stock or interests therein may be &quot;underwriters&quot;
within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale
of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are &quot;underwriters&quot;
within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities
Act.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">To the extent required, the shares of our common
stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of
any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth
in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes
this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In order to comply with the securities laws
of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or
an exemption from registration or qualification requirements is available and is complied with.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have advised the selling stockholders that
the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities
of the selling stockholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus
(as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities
Act.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have agreed to indemnify the selling stockholders
against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of
the shares offered by this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have agreed with the selling stockholders
to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as
all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DESCRIPTION OF SECURITIES TO BE REGISTERED</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following description of our capital stock
and provisions of our Articles of Organization, as amended, and Bylaws, each as amended, is only a summary. You should also refer
to our Articles of Organization, as amended, a copy of which is incorporated by reference as an exhibit to the registration statement
of which this prospectus is a part, and our Bylaws, a copy of which is incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Common Stock</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We are authorized to issue up to a total of
50,000,000 shares of common stock, par value $0.01 per share. Holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of our stockholders. Holders of our common stock have no rights under our Articles of Organization,
as amended, or our Bylaws regarding dividends unless and until dividends are declared by the board of directors, nor do they have
any rights under our Articles of Organization, as amended, or our Bylaws regarding preemption rights. Each outstanding share of
common stock is, and all shares of common stock to be issued in this offering, when they are paid for will be, fully paid and non-assessable.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Warrants</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with the September 28,
2012 offering, we issued warrants to purchase up to 1,944,475 shares of our common stock.
The warrants have an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market
price targets are reached, will expire five years from September 28, 2012, and are exercisable in whole or in part, at any
time prior to expiration.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> In addition to the payment of certain
cash fees upon closing of the September 28, 2012 offering, we also issued a warrant to Loewen, Ondaatje, McCutcheon USA LTD, our
exclusive placement agent for the offering. The warrant to purchase up to 194,446 shares of common stock was issued as part of its compensation and on similar terms to the warrants issued in the September
28, 2012 offering, except that the placement agent warrant has an exercise price of $0.95 per share. </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"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> In connection with the June 25, 2008
offering, we issued warrants to purchase up to 316,800 shares of our common stock at an exercise price of $1.75 per share and
with an expiration date of June 25, 2015, subject to extension. The exercise price of the warrants may be adjusted downward in
the event we issue shares of common stock or securities convertible into common stock at a price lower than the exercise price
of the warrants at the time of issuance. As a result of the issuance of warrants to purchase 100,000 shares of common stock in
December 2010 and the September 28, 2012 offering described above, certain anti-dilution provisions in the June 25, 2008 warrants
were triggered and we are obligated to issue an aggregate of 153,031 additional shares upon the exercise of the June 25, 2008
warrants. Additionally, the exercise price of the June 25, 2008 warrants was reduced from $1.74 to $1.18. </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: 0; text-align: justify"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>INTERESTS OF NAMED EXPERTS AND COUNSEL</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">No expert or counsel named in this prospectus
as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being
registered or upon other legal matters in connection with the registration or offering of the securities being registered was employed
for such purpose on a contingency basis, or had, or is to receive, in connection with this offering, a substantial interest, direct
or indirect, in us or any of our subsidiaries, nor was any such person connected with us or any of our subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director, officer, or employee.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>INFORMATION ABOUT THE COMPANY</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DESCRIPTION OF BUSINESS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>OVERVIEW</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have been developing and manufacturing advanced
optical instruments since 1982. Today, the vast majority of our business is the design and manufacture of high-quality medical
devices and approximately 10% of our business is design and manufacture of military and industrial products. Our medical instrumentation
line includes traditional endoscopes and endocouplers as well as other custom imaging and illumination products for use in minimally
invasive surgical procedures. Much of our recent development efforts have been targeted at the development of next generation endoscopes.
For the last ten years, we have funded internal research and development programs to develop next generation capabilities for designing
and manufacturing 3D endoscopes and very small Microprecision&trade; lenses, anticipating future requirements as the surgical community
continues to demand smaller and more enhanced imaging systems for minimally invasive surgery. Our unique proprietary technology
in these areas, combined with recent developments in the areas of 3D displays and millimeter sized image sensors, has allowed us
to begin commercialization of these technologies. We believe that new products based on these technologies provide enhanced imaging
for existing surgical procedures and can enable development of many new procedures. While we have continued to provide custom optics
solutions to our medical device company customers, we simultaneously focused significant development efforts on further advancement
of proprietary technology for 3D endoscopy and Microprecision&trade; optical components and micro medical camera assemblies.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>History</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We incorporated in Massachusetts in December&nbsp;1982
and have been publicly-owned since November&nbsp;1990. References to our Company contained herein include our two wholly-owned
subsidiaries, Precise Medical,&nbsp;Inc. and Wood&rsquo;s Precision Optics Corporation, Limited, except where the context otherwise
requires.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Principal Products and Services</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Our Current Core Business:</U> &nbsp;Since
1982, we have manufactured medical products such as endoscopes and endocouplers. We have developed and sold endoscopes incorporating
various optical technologies including our proprietary Lenslock&trade; technology, for use in a variety of minimally invasive surgical
and diagnostic procedures. Today, we produce endoscopes for various applications, which are CE marked and therefore certified for
sale throughout the European Economic Area. Since 1985, we have developed, manufactured and sold a proprietary product line of
endocouplers. We also design and manufacture custom optical medical devices to satisfy our customers&rsquo; specific requirements.
In addition to medical devices, we also manufacture and sell components and assemblies specially designed for industrial and military
use.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Microprecision&trade; Lenses and Micro Medical
Cameras:</U> While the size of endoscopes has gradually decreased over time, the widespread use of very small endoscopes, with
diameters of one millimeter or smaller, has been limited in part, we believe, by the inability of traditional lens fabrication
methods to support these smaller sizes with good image quality and acceptable manufacturing costs. We believe our Microprecision&trade;
optics technology provides a solution to this problem. Combined with recent advances by other companies in complementary metal-oxide-semiconductor
(CMOS) image sensor fabrication techniques, our Microprecision&trade; lenses and proprietary manufacturing techniques enable the
manufacture of micro medical cameras at low prices and with sizes on the order of one millimeter or less, characteristics that
make them well suited to medical applications. While we have manufactured Microprecision&trade; components for the last few years,
we only recently received production orders for endoscopes and camera assemblies that use Microprecision&trade; technology.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>3D Endoscopes:</U> Our 3D endoscopes provide
next generation optical imaging for minimally invasive surgical procedures that utilize hand-held rigid endoscopes by using the
brain&rsquo;s natural ability to perceive depth (the third dimension) by viewing one&rsquo;s environment through two eyes. Utilizing
our proprietary technology to provide independent images to right and left eyes enables surgeons to view the operative field with
3D perception. We are currently demonstrating prototype versions of our hand-held 3D endoscopes to potential customers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Competition and Markets</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We sell our products in a highly competitive
market and we compete for business with both foreign and domestic manufacturers. Many of our current competitors are larger than
us and have substantially greater resources than we do. In addition, there is an ongoing risk that other domestic or foreign companies
who do not currently service or manufacture products for our target markets, some with greater experience in the optics industry
and greater financial resources than we have, may seek to produce products or services that compete directly with ours.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe that, while our resources are substantially
more limited than those of some of our competitors, we can compete successfully in this market on the bases of product quality,
price, delivery and innovation. Our success will depend in part on our ability to maintain a technological advantage over our competitors.
To this end, we intend to continue to aggressively support and augment our internal engineering, research and development resources
and to aggressively pursue patent protection for existing and new technology. We believe that our unique technical capabilities
in the areas of Microprecision&trade; optics and micro medical cameras, as well as 3D endoscopes currently represent competitive
advantages for us in the minimally invasive surgical device market.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Market Opportunities</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Microprecision&trade; lenses and Micro Medical
Cameras:</U> While other approaches exist for the manufacture of camera lenses, we believe that none on the market today has the
combination of low cost, small size, range of optical specifications and high image quality required for many medical applications.
By enabling the production of millimeter sized and smaller cameras with low manufacturing costs, we believe this technology opens
the possibility to replace existing re-sterilizable endoscopes with a single-use alternative. Also, the small size of our Microprecision&trade;
lenses and micro medical cameras can provide visualization for existing procedures that are currently performed blind or with sub-optimal
imaging, and we believe can facilitate the development of new surgical procedures that are currently impractical without sub-mm
visualization instrumentation.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>3D Endoscopes</U>: 3D endoscopes have been
used for many years as part of robotic surgery systems partly because the market price of robotic surgery systems is high enough
to support the cost of a high quality custom 3D display. However, we believe the use of 3D endoscopes in hand-held (non-robotic)
systems has been limited in the past by the high cost of good quality 3D display systems. Recently, the cost of high quality 3D
display systems has dropped dramatically, driven by demand in the consumer market. Now, low cost, high quality 3D display systems
(i.e. 3D televisions) are newly available in the market, which we believe enables the development of 3D hand-held endoscopy and
creates a new market opportunity for our 3D endoscopes. To take advantage of this developing market, we have designed and built
a high definition 3D endoscope for use in hand-held 3D endoscopy systems. We are now demonstrating this prototype to potential
customers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Sales and Marketing</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We market our 3D endoscopes, Microprecision&trade;
optical components and micro medical cameras by leveraging our existing relationships with major medical device companies &ndash;
many of which are current customers. We intend to make our existing and future technologies available to our customers for use
in their current and newly developed minimally invasive surgical products and to eventually develop and market our own proprietary
products, which incorporate these new technologies. In addition to direct sales channels through our existing customer relationships,
we also develop new sales opportunities through our website, email mailings, and attendance at market specific tradeshows.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>International Business</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have had negligible direct export sales
to date. However, our medical products have received the CE Mark Certification, which permits sales into the European Economic
Area. We may establish or use production facilities overseas to produce key components for our business, such as lenses. Since
the 1990s, we have maintained a Hong Kong subsidiary to support business and quality control activities as required throughout
Asia. We believe that the cost savings from such production may be essential to our ability to compete on a price basis in the
medical products area particularly and to our profitability generally.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Research and Development</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe that our future success depends
to a large degree on our ability to continue to conceive and develop new optical products and technologies to enhance the performance
characteristics and methods of manufacture of existing and new products. Research and development expenses are incurred on our
own proprietary products and technology such as Microprecision&trade; optics, micro medical cameras and 3D endoscopes, as well
as on custom projects on behalf of customers. Accordingly, we expect to continue to seek to obtain product-related design and development
contracts with customers and to invest our own funds on research and development. For the years ended June 30, 2012 and 2011, research
and development expenses, net amounted to $664,696 and $825,033, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Raw Materials and Principal Suppliers</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">A key raw material component for our products
is precision grade optical glass, which we obtain from a few suppliers, principally SCHOTT North America,&nbsp;Inc. and Ohara Corporation.
For optical thin film coatings, the basic raw materials we utilize are metals and dielectric compounds, which we obtain from a
variety of chemical suppliers. Certain of the thin film coatings utilized in our products are currently procured from an outside
supplier, but most thin film coatings are produced in-house. We believe that our demand for these raw materials and thin film coating
services is small relative to the total supply, and that the materials and services required for the production of our products
are currently available in sufficient production quantities and will remain available for fiscal year 2013.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Patents and Trademarks</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We rely, in part, upon patents, trade secrets
and proprietary knowledge as well as personnel policies and employee confidentiality agreements concerning inventions and other
creative efforts to develop and to maintain our competitive position. We plan to file for patents, copyrights and trademarks in
the United States and in other appropriate countries to protect our intellectual property rights to the extent practicable.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July&nbsp;2011, we entered into an asset
purchase agreement with Intuitive Surgical Operations,&nbsp;Inc., in which we received $2.5 million in connection with the sale
of certain intellectual property. Pursuant to the agreement, we agreed to assign to Intuitive Surgical all of our currently issued
and non-expired patents and pending patent applications, and in return,&nbsp;Intuitive Surgical agreed to grant to us a royalty-free,
worldwide license to these patents in fields outside of medical robotics.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We
currently hold rights to fourteen United States patents, and have five patent applications pending, including applications for
our new generation of micro medical cameras and 3D endoscopes. Our current patent portfolio includes patents, rights to patents
and patent applications that cover various aspects of our technology in the following areas:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Medical Devices: 8 issued, 1 pending</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">3-D endoscopes: 3 issued, 2 pending</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Microprecision&trade; lenses and micro medical cameras: 2 issued,
2 pending</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Military Products: 1 issued</FONT></TD></TR></TABLE>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The patents contained in our current patent
portfolio have expiration dates ranging from November&nbsp;2011 to August&nbsp;2026. We are not aware of any infringements of these
patents. While we believe that our pending applications relate to patentable devices or concepts, these patents may not ultimately
be issued and we may not be able to successfully defend these patents or effectively limit the development of competitive products
and services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We
intend to continue to innovate and extend our technological capabilities in the areas of 3-D endoscopy Microprecision&trade; optics
and micro medical cameras and to aggressively pursue patent protection for such developments.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Employees</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> As of June&nbsp;30, 2012, we had 28
employees, 25 of which were full-time employees. Of those 28 employees, there were 14 employees in manufacturing, 5 in engineering/research
and development, 1 in sales and marketing and 8 in finance and administration. We are not a party to any collective bargaining
agreements. We believe our relations with our employees are good. </P>



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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Revenues from our largest customers, as a percentage
of total revenues, for fiscal years 2012 and 2011 were as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2012</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2011</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 68%; padding-left: 10pt; text-indent: -10pt">Customer A</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">34</TD>
    <TD STYLE="width: 1%">%</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">22</TD>
    <TD STYLE="width: 1%">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Customer B</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">24</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Customer C</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">17</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">All others</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">41</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">37</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 10pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">100</TD>
    <TD>%</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">100</TD>
    <TD>%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">No other customer accounted for more than 10%
of our revenues in fiscal years 2012 and 2011. At June 30, 2012, receivables from our two largest customers were 31% and 27%, respectively,
of total accounts receivable.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Environmental Matters</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our operations are subject to a variety of
federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relative
to the protection of the environment. From time to time, we use a small amount of hazardous materials in our operations. We believe
that we comply with all applicable environmental laws and regulations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Government Regulations</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>Domestic Regulation</I>. We currently develop,
manufacture and sell several medical products, the marketing of which is subject to governmental regulation in the United States.
Medical devices are regulated in the United States by the Food and Drug Administration, or FDA, and, in some cases, by certain
state agencies. The FDA regulates the research, testing, manufacture, safety, effectiveness, labeling, promotion and distribution
of medical devices in the United States. Generally, medical devices require clearance or approval prior to commercial distribution.
Additionally, certain material changes to, and changes in intended use of, medical devices also are subject to FDA review and clearance
or approval. Non-compliance with applicable requirements can result in failure of the FDA to grant pre-market clearance or approval,
withdrawal or suspension of approval, suspension of production, or the imposition of various other penalties.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We previously notified the FDA of our intent
to market our endoscopes, image couplers, beamsplitters, adapters and video ophthalmoscopes, and the FDA has determined that we
may market such devices, subject to the general control provisions of the Food, Drug and Cosmetic Act. We obtained this FDA permission
without the need to undergo a lengthy and expensive approval process due to the FDA&rsquo;s determination that such devices met
the regulatory standard of being substantially equivalent to existing FDA-approved devices.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In the future, we plan to market additional
medical devices that may require the FDA&rsquo;s permission to market such products. We may also develop additional products or
seek to sell some of our current or future medical products in a manner that requires us to obtain the permission of the FDA to
market such products, as well as the regulatory approval or license of other federal, state and local agencies or similar agencies
in other countries. The FDA has authority to conduct detailed inspections of manufacturing plants in order to assure that &ldquo;good
manufacturing practices&rdquo; are being followed in the manufacture of medical devices, to require periodic reporting of product
defects to the FDA and to prohibit the sale of devices which do not comply with law.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>Foreign Requirements</I>. Sales of medical
device products outside the United States are subject to foreign regulatory requirements that may vary from country to country.
Our failure to comply with foreign regulatory requirements would jeopardize our ability to market and sell our products in foreign
jurisdictions. The regulatory environment in the European Union member countries of the European Economic Area for medical device
products differs from that in the United States. Medical devices sold in the European Economic Area must bear the CE mark. Devices
are classified by manufacturers according to the risks they represent, with a classification of Class&nbsp;III representing the
highest risk devices and Class&nbsp;I representing the lowest risk devices. Once a device has been classified, the manufacturer
can follow one of a series of conformity assessment routes, typically through a registered quality system, and demonstrate compliance
to a &ldquo;European Notified Body.&rdquo; The CE mark may then be applied to the device. Maintenance of the system is ensured
through annual on-site audits by the notified body and a post-market surveillance system requiring the manufacturer to submit serious
complaints to the appropriate governmental authority. All of our medical products are CE mark certified.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Available Information</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">Our website is www.poci.com. We make
available on our website, free of charge, copies of our annual reports on Form&nbsp;10-K, quarterly reports on Form&nbsp;10-Q,
current reports on Form&nbsp;8-K and amendments to those reports, as soon as reasonably practicable after we electronically file
or furnish such materials to the U.S. Securities and Exchange Commission, or SEC. Our website and the information contained therein
or connected thereto are not intended to be incorporated into this prospectus.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt; text-align: justify">You may also read and copy any materials
we file with the SEC at the SEC's Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC at http://www.sec.gov.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DESCRIPTION OF PROPERTY</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We conduct our domestic operations at two facilities
in Gardner, Massachusetts. The main Gardner facility is leased from a corporation owned by an individual who serves on our board
of directors. The lease terminated in December&nbsp;1999 and we are currently a tenant-at-will. We rent the other Gardner facility
on a month-to-month basis. We rent office space in Hong Kong for sales, marketing and supplier quality control and liaison activities
related to our Hong Kong subsidiary.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe these facilities are adequate for
our current operations and are adequately covered by insurance. Significant increases in production or the addition of significant
equipment additions or manufacturing capabilities in connection with the production of our line of endoscopes and other products
may, however, require the acquisition or lease of additional facilities. We may establish production facilities domestically or
overseas to produce key assemblies or components, such as lenses, for our products. Overseas facilities may subject us to the political
and economic risks associated with overseas operations. The loss of or inability to establish or maintain such additional domestic
or overseas facilities could materially adversely affect our competitive position and profitability.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We may be involved from time to time in ordinary
litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware
of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material
impact on our operations or finances.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Market Information</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Our common stock (OTCQB: PEYE) is quoted on
OTCQB, the OTC market tier for companies that report to the SEC. Our common stock was quoted on the OTCBB until February 23, 2011.
The following table sets forth the high and low bid prices for our common stock for each quarter during the last two fiscal years
as quoted on OTCQB. Such OTC market quotations reflect inter-dealer prices, without retail markup, markdown or commissions and
may not necessarily represent actual transactions.</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">High</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Low</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; font-style: italic; font-weight: bold; text-indent: -10pt">For the Fiscal Year Ended June 30, 2011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="width: 68%; padding-left: 10pt; text-indent: -10pt">First Quarter ended September 30, 2010</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 12%; text-align: right">3.60</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 12%; text-align: right">0.02</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Second Quarter ended December 31, 2010</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.10</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Third Quarter ended March 31, 2011</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.15</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Fourth Quarter ended June 30, 2011</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.20</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; width: 68%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: -10pt"><B><I>For the Fiscal Year Ended June 30, 2012</I></B></P></TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">First Quarter ended September 30, 2011</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.25</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Second Quarter ended December 31, 2011</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.25</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Third Quarter ended March 31, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.13</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Fourth Quarter ended June 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">2.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.10</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: -10pt"><B><I>For the Fiscal Year Ended June 30, 2013</I></B></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">First Quarter ended September 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0.85</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt"> Second Quarter ended December 31, 2012 (through November 29, 2012) </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 1.19 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 0.89 </TD>
    <TD> &nbsp; </TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of October 5, 2012, we had approximately
100 holders of record of our common stock. Holders of record include nominees who may hold shares on behalf of multiple owners.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Dividends</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have not declared any dividends during the
last two fiscal years. At present, we intend to retain our earnings, if any, to finance research and development and expansion
of our business.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Securities Authorized for Issuance under
Equity Compensation Plans </B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table summarizes information
about our equity compensation plans as of June 30, 2012.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 29%; border-bottom: black 1pt solid; font-weight: bold">Plan category</TD>
    <TD STYLE="width: 23%; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Number of securities<BR>
 to be issued <BR>
upon exercise of <BR>
outstanding options, <BR>
warrants and rights</TD>
    <TD STYLE="width: 23%; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Weighted-average<BR>
 exercise price of <BR>
outstanding options,<BR>
 warrants and rights</TD>
    <TD STYLE="width: 25%; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Number of securities <BR>
remaining available<BR>
 for future issuance<BR>
 under equity<BR>
 compensation plans <BR>
(excluding securities <BR>
reflected in column (a))</TD></TR>
<TR STYLE="vertical-align: top; background-color: #EEEEEE">
    <TD>Equity compensation plans approved by security holders</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">184,787</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$ 8.34</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">43,698</TD></TR>
<TR STYLE="vertical-align: top; background-color: white">
    <TD>Equity compensation plans not approved by security holders</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">207,800</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$ 1.20</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">117,200</TD></TR>
<TR STYLE="vertical-align: top; background-color: #EEEEEE">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5pt; text-indent: -5pt">Total</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">392,587</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$ 4.56</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">160,898</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>2006 Equity Incentive Plan</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On November 28, 2006, our stockholders approved
the Precision Optics Corporation, Inc. 2006 Equity Incentive Plan (the &ldquo;2006 Plan&rdquo;), which succeeded the Precision
Optics Corporation, Inc. Amended and Restated 1997 Equity Incentive Plan (the &ldquo;1997 Plan&rdquo;). No further awards have
been or will be granted under the 1997 Plan. The 2006 Plan allows for the grant of stock options to selected employees, directors
and other persons who provide services to us or our affiliates.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><I>2011 Equity Incentive Plan</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Precision Optics Corporation, Inc. 2011
Equity Incentive Plan (the &ldquo;2011 Plan&rdquo;) was adopted by our Board of Directors on October 13, 2011. The 2011 Plan allows
for the grant of stock options to selected employees, directors and other persons who provide services to us or our affiliates.</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD COLSPAN="2" STYLE="font-weight: bold">Index to Financial Statements</TD>
    <TD STYLE="border-bottom: black 1.5pt solid; font-weight: bold; text-align: center">Page</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 91%">&nbsp;</TD>
    <TD STYLE="width: 7%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Balance Sheets at September 30, 2012 and June 30, 2012 (unaudited)</TD>
    <TD STYLE="text-align: center">F-2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Statements of Operations for Three Months Ended September 30, 2012 and 2011 (unaudited)</TD>
    <TD STYLE="text-align: center">F-3</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2012 and 2011 (unaudited)</TD>
    <TD STYLE="text-align: center">F-4</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements (unaudited)</TD>
    <TD STYLE="text-align: center">F-5</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="text-align: center">F-9</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Balance Sheets at June 30, 2012 and 2011</TD>
    <TD STYLE="text-align: center">F-10</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Statements of Operations for the Years Ended June 30, 2012 and 2011</TD>
    <TD STYLE="text-align: center">F-11</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Statement of Shareholders&rsquo; Equity for the Years Ended June 30, 2012 and 2011</TD>
    <TD STYLE="text-align: center">F-12</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flows for the Years Ended June 30, 2012 and 2011</TD>
    <TD STYLE="text-align: center">F-13</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements</TD>
    <TD STYLE="text-align: center">F-14</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CONSOLIDATED BALANCE SHEETS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>(UNAUDITED)</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September 30, <BR>2012</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; border-bottom: Black 1pt solid">June&nbsp;30, <BR>2012</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="font-weight: bold; text-decoration: underline; 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; text-indent: -0.25in; padding-left: 0.25in">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(238,238,238)">
    <TD STYLE="width: 66%; text-align: left; text-indent: -0.25in; padding-left: 0.25in">Cash and Cash Equivalents</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">2,337,694</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">145,923</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accounts Receivable, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">298,621</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">341,900</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Inventories, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">659,603</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">682,900</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Prepaid Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">51,501</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">33,719</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 27pt">Total Current Assets</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,347,419</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,204,442</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">PROPERTY AND EQUIPMENT</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Machinery and Equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,355,968</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,355,968</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Leasehold Improvements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">553,596</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">553,596</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Furniture and Fixtures</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">148,303</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">148,303</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.25in; padding-left: 0.25in">Vehicles</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">19,674</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">19,674</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,077,541</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,077,541</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Less: Accumulated Depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,040,668</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,035,584</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 27pt">Net Property and Equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36,873</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">41,957</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <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; text-indent: -0.25in; padding-left: 0.25in">TOTAL ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,384,292</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,246,399</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="font-weight: bold; text-decoration: underline; text-align: center">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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; text-indent: -0.25in; padding-left: 0.25in">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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">10% Senior Secured Convertible Notes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">51,250</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accounts Payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">691,428</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">410,316</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Customer Advances</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,387</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accrued Employee Compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">193,732</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">171,205</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accrued Professional Services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,567</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accrued Warranty Expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Other Accrued Liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">912</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 27pt">Total Current Liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">984,227</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">727,070</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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-left: 10pt; text-indent: -10pt">Common Stock, $0.01 par value - <BR>Authorized - 50,000,000 shares; Issued and Outstanding &ndash; 4,029,134 shares at September 30, 2012 and 1,251,339 shares at June&nbsp;30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,291</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,513</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Additional Paid-in Capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,220,267</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39,009,215</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accumulated Deficit</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(38,860,493</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(38,502,399</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 27pt">Total Stockholders&rsquo; Equity (Deficit)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,400,065</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">519,329</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">TOTAL LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</TD><TD>&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">3,384,292</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&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">1,246,399</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>The accompanying notes are an integral part
of these consolidated interim financial statements.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND
SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FOR THE THREE MONTHS ENDED</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SEPTEMBER 30, 2012 AND 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>(UNAUDITED)</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months <BR>Ended September&nbsp;30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</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; border-bottom: Black 1pt solid">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 66%; text-indent: -0.25in; padding-left: 0.25in">Revenues</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">563,398</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">504,749</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Cost of Goods Sold</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">433,925</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">365,455</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Gross Profit</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">129,473</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">139,294</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Research and Development Expenses, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">207,291</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">151,190</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Selling, General and Administrative Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">280,964</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">253,356</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Gain on Sale of Assets</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,938</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,050</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Total Operating Expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">486,317</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">402,496</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Operating Loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(356,844</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(263,202</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Gain on Sale of Patents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,276,286</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Interest Income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">357</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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Interest Expense</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,250</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(15,000</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(238,238,238)">
    <TD STYLE="text-align: left">Net Income (Loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(358,094</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,998,441</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(238,238,238)">
    <TD STYLE="text-indent: -0.25in; padding-left: 0.25in">Income (Loss) Per Share:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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: -0.25in; padding-left: 27pt">Basic</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.27</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2.06</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-indent: -0.25in; padding-left: 27pt">Diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.27</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1.15</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(238,238,238)">
    <TD STYLE="text-indent: -0.25in; padding-left: 0.25in">Weighted Average Common Shares Outstanding:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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: -0.25in; padding-left: 27pt">Basic</TD><TD>&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">1,341,919</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&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">971,013</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-indent: -0.25in; padding-left: 27pt">Diluted</TD><TD>&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">1,341,919</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&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">1,749,339</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>The accompanying notes are an integral part
of these consolidated interim financial statements.</I></P>

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

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    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FOR THE THREE MONTHS ENDED</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SEPTEMBER 30, 2012 AND 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>(UNAUDITED)</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months <BR> Ended September 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</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; border-bottom: Black 1pt solid">2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">CASH FLOWS FROM OPERATING ACTIVITIES:</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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: 66%; text-align: left">Net Income (Loss)</TD>
    <TD STYLE="width: 2%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">(358,094</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">1,998,441</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities -</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">Depreciation and Amortization</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,084</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,937</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 9pt">Gain on Sale of Patents</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,276,286</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Gain on Sale of Assets</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,938</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,050</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 9pt">Stock-based Compensation Expense</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,508</TD><TD STYLE="text-align: left">&nbsp;</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></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Non-cash Interest Expense</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 9pt">Changes in Operating Assets and Liabilities -</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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: 0.25in">Accounts Receivable, net</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">43,279</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,345</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-left: 0.25in">Inventories</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">23,297</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,584</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Prepaid Expenses</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(17,782</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(45,481</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts Payable</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">38,975</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(232,474</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Customer Advances</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,887</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,513</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accrued Expenses</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,182</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(76,393</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 27pt">Net Cash Used In Operating Activities</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(228,126</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(694,580</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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 STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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(238,238,238)">
    <TD STYLE="text-align: left">Net Proceeds from Sale of Patents</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,463,171</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Additional Patent Costs</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,724</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Proceeds from Sale of Assets</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,938</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,050</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">Net Cash Provided By Investing Activities</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,938</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,463,497</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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 STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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(238,238,238)">
    <TD STYLE="text-align: left">Gross Proceeds from September 2012 Private Placement of Common Stock and Warrants</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,500,015</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Private Placement Expenses Incurred and Paid as of September 30, 2012</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(29,556</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Payment of principal and interest on 10% Senior Convertible Notes</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(52,500</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</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">Net Cash Provided by Financing Activities</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,417,959</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,191,771</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,768,917</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">145,923</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">19,556</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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(238,238,238)">
    <TD STYLE="text-align: left">CASH AND CASH EQUIVALENTS, END OF PERIOD</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,337,694</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,788,473</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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(238,238,238)">
    <TD STYLE="text-align: left">SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">Cash Paid for Income Taxes</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">912</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">912</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">Private Placement Expenses Incurred But Not Yet Paid as of September 30, 2012</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">242,137</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>The accompanying notes are an integral part
of these consolidated interim financial statements.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">1.</TD>
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 95%"><U>SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Principles of Consolidation and Operations</U></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying consolidated financial statements
include the accounts of Precision Optics Corporation,&nbsp;Inc. and its wholly-owned subsidiaries (the &ldquo;Company&rdquo;).
All significant intercompany accounts and transactions have been eliminated in consolidation.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">These consolidated financial statements have
been prepared by the Company, without audit, and reflect normal recurring adjustments which, in the opinion of management, are
necessary for a fair statement of the results of the first quarter of the Company&rsquo;s fiscal year 2013. These consolidated
financial statements do not include all disclosures associated with annual consolidated financial statements and, accordingly,
should be read in conjunction with footnotes contained in the Company&rsquo;s consolidated financial statements for the year ended
June&nbsp;30, 2012 together with the Report of Independent Registered Public Accounting Firm filed under cover of the Company&rsquo;s
2012 Annual Report on Form&nbsp;10-K, filed with the Securities and Exchange Commission on October 15, 2012 and amended on October
26, 2012 to furnish Exhibit 101 to the Form 10-K, which contains the XBRL (eXtensible Business Reporting Language) Interactive
Data File for the financial statements and notes included thereto.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Use of Estimates</U></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of these consolidated financial
statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. The Company bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Income (Loss) Per Share</U></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic income (loss) per share is computed by
dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted
income (loss) per share is computed by dividing net income or net loss (adjusted by adding back interest expense on senior convertible
notes) by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive
securities outstanding during the period such as stock options and warrants, shares issuable upon conversion of senior convertible
notes and shares issuable to satisfy deferred compensation and consulting obligations. For the three months ended September 30,
2012, the effect of such securities was antidilutive and not included in the diluted calculation because of the net loss generated
in that period.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The following is the calculation of income (loss) per share for
the three months ended September 30, 2012 and 2011:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three Months <BR>Ended September&nbsp;30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</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; border-bottom: Black 1pt solid">2011</TD><TD STYLE="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(238,238,238)">
    <TD STYLE="width: 66%; text-align: left">Net Income (Loss) &ndash; Basic</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">(358,094</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">1,998,441</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Interest Expense on Senior Convertible Notes</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Net Income (Loss) &ndash; Diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(358,094</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,013,441</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(238,238,238)">
    <TD>Basic Weighted Average Shares Outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,341,919</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">971,013</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Potentially Dilutive Securities</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">778,326</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>Diluted Weighted Average Shares Outstanding</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,341,919</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,749,339</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(238,238,238)">
    <TD>Income (Loss) Per Share</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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;&nbsp;&nbsp;&nbsp;&nbsp;Basic</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.27</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2.06</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.27</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1.15</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The number of shares issuable upon the exercise of outstanding stock
options and warrants that were excluded from the computation as their effect was antidilutive was approximately 3,106,000 and 1,112,000
for the three months ended September&nbsp;30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><U>Income Taxes</U></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Income taxes are accounted for under the asset
and liability method. 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 carryforwards. 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 income in the period that includes the enactment date.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In assessing the likelihood of utilization
of existing deferred tax assets, management has considered historical results of operations and the current operating environment.
Based on this evaluation, a full valuation reserve has been provided for the deferred tax assets.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">2.&nbsp;</TD>
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 95%"><U>INVENTORIES</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories are stated at the lower of cost
(first-in, first-out) or market and consist of the following:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&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">September 30,<BR> 2012</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">June&nbsp;30,<BR> 2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 66%; text-align: left; text-indent: -0.25in; padding-left: 0.25in">Raw Materials</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">269,878</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">277,392</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.25in; padding-left: 0.25in">Work-In-Progress</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">295,056</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">289,748</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -0.25in; padding-left: 0.25in">Finished Goods</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">94,669</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">115,760</TD><TD STYLE="padding-bottom: 1pt; 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: -0.25in; padding-left: 0.25in">Total Inventories</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">659,603</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">682,900</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">3.</TD>
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 95%"><U>10% SENIOR SECURED CONVERTIBLE NOTES</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 10% Senior Secured Convertible Notes
(the &ldquo;Notes&rdquo;) consist of the following:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&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">September 30,<BR> 2012</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">June&nbsp;30,<BR> 2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 66%; text-align: left; text-indent: -9pt; padding-left: 9pt">10% Senior Secured Convertible Notes issued on June&nbsp;25, 2008, convertible into common stock at $1.25 per share, bearing interest at 10% per annum. Outstanding principal and accrued interest due at maturity, September 30, 2012</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">&ndash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">50,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accrued interest&mdash;10% coupon due on September&nbsp;30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&ndash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,250</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&ndash;</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">51,250</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, the Company repaid Mr.
Schumsky the outstanding and accrued interest of $2,500 due under his Note and such payment satisfied its obligations in regards
to the accrued interest due on the Note in full. On that same date, Mr. Schumsky presented the outstanding principal balance of
the Note to the Company and agreed to exchange the $50,000 principal balance of his Note for participation in the Company&rsquo;s
September 2012 financing transaction (as described in further detail in Note 5, Sale of Stock) and was issued units consisting
of 55,555 shares of common stock and 38,889 warrants upon the same terms as the units sold in the September 2012 financing transaction.
Accordingly, the Note held by Mr. Schumsky has been satisfied in full and the obligations thereunder have been terminated.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">4.</TD>
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 95%"><U>STOCK-BASED COMPENSATION</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Stock-based compensation costs recognized during
the quarters ended September 30, 2012 and 2011 amounted to $10,508 and $12,000, respectively, and the costs were included in the
accompanying consolidated statements of operations in: selling, general and administrative expenses (2012 - $8,050; 2011 - $7,500),
cost of goods sold (2012 - $1,908; 2011 - $4,500), and research &amp; development expenses (2012 - $550, 2011 - $0). No stock-based
compensation has been capitalized because such amounts would have been immaterial.&nbsp;&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">There were no stock option grants or cancellations during the quarter
ended September 30, 2012.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of September 30, 2012, the unrecognized compensation costs related
to options&nbsp;vesting of $218,458 will be&nbsp;recognized over a period of approximately 1.75 years.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Information related to the stock options outstanding as of September
30, 2012 is as follows:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Range of Exercise Prices</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Number of <BR>Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Weighted-Average <BR>Remaining <BR>Contractual <BR>Life (years)</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Weighted-Average <BR>Exercise Price</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Exercisable <BR>Number <BR>of Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Exercisable <BR>Weighted-Average <BR>Exercise Price</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">1.20</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; text-align: right">207,800</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; text-align: right">9.42</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">1.20</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: 13%; text-align: right">32,800</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">1.20</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9.37</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.55</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.55</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.27</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.79</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.27</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.27</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.35</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.35</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.35</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">6.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.25</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.25</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.75</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">11.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11.50</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11.50</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">13.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,427</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.61</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13.75</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,427</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13.75</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">20.75</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">37,360</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.71</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20.75</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">37,360</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20.75</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">$0.27&ndash;$20.75</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">392,587</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7.90</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4.56</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">166,921</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">9.32</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate intrinsic value of the Company&rsquo;s
&ldquo;in-the-money&rdquo; outstanding and exercisable options as of September 30, 2012 was $47,600 and $21,734, respectively.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">5.<U></U></TD>
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 95%"><U>SALE OF STOCK</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, the Company closed on
agreements with accredited investors (the &ldquo;Investors&rdquo;) for the sale and purchase of units consisting of an aggregate
of (i) 2,777,795 shares of the Company&rsquo;s common stock, and (ii) warrants to purchase an aggregate of 1,944,475 shares of
common stock, at a per unit price of $0.90. Each unit consisted of one share of common stock and 70% warrant coverage. The warrants
have an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached,
will expire five years from September 28, 2012, and are exercisable in whole or in part, at any time prior to expiration. Certain
directors and officers participated in the offering and purchased a total aggregate amount of approximately $80,000 of units in
the offering.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company received $2.5 million in gross
proceeds from the offering. The Company retained Loewen, Ondaatje, McCutcheon USA LTD as the exclusive placement agent for the
offering. In addition to the payment of certain cash fees upon closing of the offering, the Company issued a warrant to the placement
agent to purchase up to 194,446 shares of common stock on substantially similar terms to the warrants issued in the offering, except
that the placement agent warrant has an exercise price of $0.95 per share. The Company anticipates using the net proceeds from
the offering to fund start-up costs associated with the previously-announced order for micro endoscopes as well as other recently
received orders for new products in addition to working capital needs and for general corporate purposes.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In conjunction with the offering, the Company
also entered into a registration rights agreement dated September 28, 2012 with the Investors, whereby it is obligated to file
a registration statement with the Securities and Exchange Commission (the &ldquo;SEC&rdquo;) on or before thirty calendar days
after September 28, 2012 to register the resale by the Investors of the 2,777,795 shares of the common stock purchased in the offering,
and the 1,944,475 shares of common stock underlying the warrants purchased in the offering. If a registration statement covering
the securities is not filed with the SEC prior to the 30th day filing deadline (the &ldquo;Filing Deadline&rdquo;), the Company
will have to pay an amount equal to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject
to certain conditions. The Company is also obligated to use all commercially reasonable efforts to have the registration statement
declared effective by the SEC within 60 days after the registration statement is filed, or 90 days if the Company receives comments
on the registration statement from the SEC. If there is not an effective registration statement in place by the 60th day after
the Filing Deadline, or the 90th day after the Filing Deadline if the Company receives comments from the SEC, the Company will
have to pay an amount equal to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject
to certain conditions. The Company filed the registration statement with the SEC on October 26, 2012, prior to the Filing Deadline.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In conjunction with the offering, certain anti-dilution provisions
of the warrants issued in conjunction with the June 25, 2008 financing transaction were triggered. As a result, the number of existing
June 25, 2008 warrants increased from 318,621 to 469,831 and the related exercise price of the warrants decreased from $1.74 per
share to $1.18 per share. The June 25, 2008 warrants expire on June 25, 2015.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to the Tax Reform Act of 1986, the
utilization of net operating loss carryforwards and other tax benefits are subject to an annual limitation if a cumulative change
of ownership of more than 50% occurs over a three-year period. As a result of the September 2012 private placement of the Company&rsquo;s
common stock, the Company believes it may have triggered significant limitations on the utilization of those tax attributes. The
limitations, if triggered, would allow the use of the value of approximately $34,000 of Federal carryforward losses annually for
the next twenty years, and the same amount for state purposes for 20 years.</P>

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 5%">6<FONT STYLE="font-size: 10pt">.</FONT></TD>
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 95%"><FONT STYLE="font-size: 10pt"><U>SALE OF ASSETS</U></FONT></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended September 30, 2012
and 2011, respectively, the Company sold equipment that was previously written off for proceeds totaling $1,938 and $2,050, respectively,
and recorded a gain of $1,938 and $2,050, respectively, which is included within operating expenses in the accompanying consolidated
statements of operations.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 5%">7.</TD>
    <TD STYLE="text-align: justify; padding-left: 10pt; text-indent: -10pt; width: 95%"><U>SALE OF PATENTS</U></TD></TR>
</TABLE>


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 28, 2011, the Company entered into
an asset purchase agreement with Intuitive Surgical Operations, Inc. (&ldquo;Intuitive Surgical&rdquo;), in which it received gross
proceeds of $2,500,000 (less transaction expenses of&nbsp;&nbsp;$36,829) in connection with the sale of certain intellectual property.
Pursuant to the agreement, the Company agreed to assign to Intuitive Surgical all of its currently issued and non-expired patents
and pending patent applications, and Intuitive Surgical agreed to grant back to the Company a royalty-free, worldwide license to
the patents in all fields outside of medical robotics, except in certain exceptional circumstances.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with this agreement, the Company
recorded a gain on the sale of such intellectual property of $2,276,286 in the quarter ended September 30, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Report of Independent Registered Public Accounting
Firm</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">To the Board of Directors and Shareholders of</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Precision Optics Corporation,&nbsp;Inc.:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have audited the accompanying consolidated
balance sheets of Precision Optics Corporation,&nbsp;Inc. and subsidiaries (the Company) as of June&nbsp;30, 2012 and 2011 and
the related consolidated statements of operations, stockholders&rsquo; equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company&rsquo;s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">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. The Company
is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. An audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company&rsquo;s internal control over
financial reporting. Accordingly, we express no such opinion. 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: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Precision Optics
Corporation,&nbsp;Inc. and subsidiaries as of June&nbsp;30, 2012 and 2011 and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">/s/ Stowe&nbsp;&amp; Degon&nbsp;LLC</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Westborough, Massachusetts</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">October&nbsp;1, 2012</P>

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

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Consolidated Balance Sheets at June&nbsp;30, 2012 and 2011</B></P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt; text-align: center">&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; text-align: center">&nbsp;</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt; text-align: center">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">ASSETS</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Current Assets:</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 68%; text-align: left; padding-bottom: 1pt; padding-left: 11pt">Cash and cash equivalents</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">145,923</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">19,556</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 22pt; text-indent: -11pt">Accounts receivable (net of allowance for doubtful accounts of $11,446&nbsp;in 2012 and 2011)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">341,900</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">148,824</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Inventories</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">682,900</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">666,285</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Prepaid expenses</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">33,719</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">37,664</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 22pt">Total current assets</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,204,442</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">872,329</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Fixed Assets:</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Machinery and equipment</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,355,968</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,355,968</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Leasehold improvements</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">553,596</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">553,596</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Furniture and fixtures</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">148,303</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">148,303</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Vehicles</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">19,674</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">19,674</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">3,077,541</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">3,077,541</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Less&mdash;Accumulated depreciation and amortization</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">3,035,584</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">3,015,315</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net fixed assets</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">41,957</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">62,226</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Patents, net</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">188,260</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <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">1,246,399</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">1,122,815</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Current Liabilities:</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">10% Senior secured convertible notes</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">51,250</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">780,833</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Accounts payable</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">410,316</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">709,395</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Customer advances</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">6,387</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">36,292</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Accrued employee compensation</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">171,205</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">711,015</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Accrued professional services</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">62,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">54,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Accrued warranty expense</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">25,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">25,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Other accrued liabilities</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">912</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">912</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 22pt">Total current liabilities</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">727,070</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,317,447</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Commitments (Note&nbsp;3)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Stockholders&rsquo; Equity (Deficit):</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt; text-indent: -11pt">Common stock, $0.01 par value: 50,000,000 shares authorized; 1,251,339 and 971,013 shares issued and outstanding at June&nbsp;30, 2012 and June&nbsp;30, 2011, respectively</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">12,513</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">9,710</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Additional paid-in capital</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">39,009,215</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">38,259,029</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accumulated deficit</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(38,502,399</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(39,463,371</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total stockholders&rsquo; equity (deficit)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">519,329</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(1,194,632</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <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">1,246,399</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&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">1,122,815</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>The accompanying notes are an integral part of these consolidated
financial statements.&nbsp;</I></P>

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

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

<!-- Field: Page; Sequence: 34; Value: 1 -->
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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Consolidated Statements of Operations </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>for the Years Ended June&nbsp;30, 2012 and 2011</B></P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD>
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD>
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 68%; text-align: left">Revenues</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">2,152,396</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">2,245,137</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cost of Goods Sold</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,594,990</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,493,021</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Gross profit</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">557,406</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">752,116</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Research and Development Expenses, net</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">664,696</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">825,033</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Selling, General and Administrative Expenses</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1,187,665</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">958,509</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">Gain on Sale of Assets and Other</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(10,226</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(39,518</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total operating expenses</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,842,135</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,744,024</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Operating loss</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(1,284,729</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(991,908</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Gain on Sale of Patents</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,276,286</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Interest Income</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">535</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">207</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest Expense</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(30,208</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">(60,000</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Income (Loss) before provision for income taxes</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">961,884</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(1,051,701</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Provision for Income Taxes</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">912</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">912</TD>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 11pt">Net Income (loss)</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">960,972</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">(1,052,613</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Income (Loss) Per Share:</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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: 11pt">Basic</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">0.83</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">(1.06</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 11pt">Diluted</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">0.78</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">(1.06</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">)</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(238,238,238)">
    <TD STYLE="text-align: left">Weighted Average Common Shares Outstanding:</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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: 11pt">Basic</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">1,163,775</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">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">994,777</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 11pt">Diluted</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">1,275,938</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">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">994,777</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>The accompanying notes are an integral part of these consolidated
financial statements.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Consolidated Statements of Stockholders&rsquo; Equity</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>for the Years Ended June&nbsp;30, 2012 and 2011</B></P>

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

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: center; padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">Number of&nbsp;Shares</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">Common<BR> Stock</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">Additional <BR> Paid-in <BR> Capital</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">Accumulated<BR> Deficit</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: center; font-weight: bold">Total<BR> Stockholders&rsquo;<BR> Equity&nbsp;(Deficit)</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font-weight: bold">&nbsp;</TD></TR>
<TR>
    <TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt; width: 20%">Balance, July&nbsp;1, 2010</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">1,018,411</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">10,184</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">38,236,325</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">(38,410,758</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">(164,249</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Purchase of treasury stock</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(47,398</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(474</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(474</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Stock-based compensation</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">22,704</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">22,704</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net 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">&ndash;</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">&ndash;</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">&ndash;</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">(1,052,613</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">(1,052,613</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Balance, June&nbsp;30, 2011</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">971,013</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">9,710</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">38,259,029</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">(39,463,371</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">(1,194,632</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Restricted stock issued to officers and directors</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">245,326</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,453</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">672,192</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">674,645</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Stock-based compensation</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">35,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">350</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">77,994</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">78,344</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net income</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">&ndash;</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">&ndash;</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">&ndash;</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">960,972</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">960,972</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 5pt; text-indent: -5pt">Balance, June&nbsp;30, 2012</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,251,339</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">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">12,513</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">39,009,215</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">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(38,502,399</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">519,329</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>The accompanying notes are an integral part of these consolidated
financial statements.</I></P>

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

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

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

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

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

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

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

<!-- Field: Page; Sequence: 36; Value: 1 -->
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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>PRECISION OPTICS CORPORATION,&nbsp;INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Consolidated Statements of Cash Flows for the</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Years Ended June&nbsp;30, 2012 and 2011</B></P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; border-bottom: Black 1pt solid">2012</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center; vertical-align: bottom; border-bottom: Black 1pt solid">2011</TD>
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">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: rgb(238,238,238)">
    <TD STYLE="width: 68%; text-align: left; text-indent: -10pt; padding-left: 10pt">Net income (loss)</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">960,972</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">(1,052,613</TD>
    <TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Adjustments to reconcile net loss to net cash used 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: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Depreciation and amortization</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">23,368</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">57,605</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Gain on sale of patents</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(2,276,286</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Gain on sale of assets</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(10,226</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(35,967</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Provision (benefit) for inventory write-down</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">14,033</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(10,363</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Stock-based compensation expense</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">78,344</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">22,704</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Non-cash interest expense</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">30,208</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">60,000</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Changes in operating assets and 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="text-align: left; text-indent: -10pt; padding-left: 10pt">Accounts receivable, net</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(193,076</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">356,376</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Inventories</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(30,648</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">28,399</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Prepaid expenses</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">3,945</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(4,165</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Accounts payable</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(129,079</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">260,501</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Customer advances</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(29,905</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(64,776</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Accrued expenses and 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">(27,165</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">(31,226</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Net cash provided by (used in) 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">(1,585,515</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">(413,525</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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; text-indent: -10pt; padding-left: 10pt">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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Net proceeds from sale of patents</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,463,171</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Proceeds from sale of assets</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">10,226</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">35,967</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Additional patent 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">(1,724</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">(18,452</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">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">2,471,673</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">17,515</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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; text-indent: -10pt; padding-left: 10pt">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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Payment of principal and interest on 10% Senior Convertible Notes</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(759,791</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&ndash;</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; text-indent: -10pt; padding-left: 10pt">Purchase of treasury stock (47,398 shares)</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">&ndash;</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">(474</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">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">(759,791</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">(474</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Net increase (decrease) in cash and cash equivalents</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">126,367</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(396,484</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Cash and cash equivalents, beginning of year</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">19,556</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">416,040</TD>
    <TD STYLE="padding-bottom: 1pt; 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: -10pt; padding-left: 10pt">Cash and cash equivalents, end of year</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">145,923</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">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">19,556</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Supplemental Disclosure of Cash Flow Information:</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-left: 9pt; padding-bottom: 2.5pt">Cash paid during the year for income taxes</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">912</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">$</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">912</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Supplemental Disclosure of Noncash Investing and Financing Activities:</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Issuance of common stock to satisfy deferred compensation obligations (245,326 shares)</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">674,645</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">&ndash;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>The accompanying notes are an integral part of these consolidated
financial statements.</I></P>

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PRECISION OPTICS CORPORATION, INC. AND SUBSIDIARIES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Notes to Consolidated Financial Statements</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(1)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(a)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Nature of Business</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Precision Optics Corporation, Inc. (the &ldquo;Company&rdquo;)
designs, develops, manufactures and sells specialized optical systems and components and optical thin-film coatings. The Company
conducts business in one industry segment only and its customers are primarily domestic. The Company&rsquo;s products and services
fall into two principal areas: (i) medical products for use by hospitals and physicians; and (ii) advanced optical system design
and development services and products used by industrial customers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(b)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Principles of Consolidation</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The accompanying consolidated financial statements
include the accounts of the Company and its two wholly-owned subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation. All shares and per share data reflect the effects of a 1-for-25 reverse stock split that became effective
on December 11, 2008.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(c)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Revenues</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company recognizes revenue when four basic
criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price
to the buyer is fixed and determinable; and (4) collectability is reasonably assured. The Company&rsquo;s shipping terms are customarily
FOB shipping point.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The sales price of products and services sold
is fixed and determinable after receipt and acceptance of a customer&rsquo;s purchase order or properly executed sales contract,
typically before any work is performed. Management reviews each customer purchase order or sales contract to determine that the
work to be performed is specified and there are no unusual terms and conditions that would raise questions as to whether the sales
price is fixed or determinable. The Company assesses credit worthiness of customers based upon prior history with the customer
and assessment of financial condition. Accounts receivable are stated at the amount management expects to collect from outstanding
balances. An allowance for doubtful accounts is provided for that portion of accounts receivable considered to be uncollectible,
based upon historical experience and management&rsquo;s evaluation of outstanding accounts receivable at the end of the year. Bad
debts are written off against the allowance when identified.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company&rsquo;s revenue transactions typically
do not contain multiple deliverable elements for future performance obligations to customers, other than a standard one-year warranty
on materials and workmanship, the estimated costs for which are provided for at the time revenue is recognized.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Revenues for industrial and medical products
sold in the normal course of business are recognized upon shipment when delivery terms are FOB shipping point and all other revenue
recognition criteria have been met. Gross shipping charges reimbursable from customers, to deliver product, are insignificant and
are included in &ldquo;Revenues&rdquo; section of the Consolidated Statement of Operations, while shipping costs are classified
in the &ldquo;Selling, General and Administrative Expenses&rdquo; section of the Consolidated Statement of Operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(d)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Cash and Cash Equivalents</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company includes in cash equivalents all
highly liquid investments with original maturities of three months or less at the time of acquisition. Cash and cash equivalents
of $145,923 and $19,556 at June 30, 2012 and 2011, respectively, consist primarily of cash at banks and money market funds. The
Company maintains its cash and cash equivalents in bank deposit accounts that, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk
on its cash and cash equivalents.</P>

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(e)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Inventories</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Inventories are stated at the lower of cost
(first-in, first-out) or market and include material, labor and manufacturing overhead. The components of inventories at June 30,
2012 and 2011 are as follows:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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="font-weight: bold; padding-bottom: 1pt">&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">2011</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 66%; text-align: left; text-indent: -10pt; padding-left: 10pt">Raw material</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 13%; text-align: right">277,392</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 13%; text-align: right">271,608</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Work-in-progress</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">289,748</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">312,097</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; text-indent: -10pt; padding-left: 10pt">Finished goods</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">115,760</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">82,580</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">682,900</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">666,285</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company provides for estimated obsolescence
on unmarketable inventory based upon assumptions about future demand and market conditions. If actual demand and market conditions
are less favorable than those projected by management, additional inventory write-downs may be required. Inventory, once written
down, is not subsequently written back up, as these adjustments are considered permanent adjustments to the carrying value of the
inventory.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During fiscal year 2012, the Company recorded
a pre-tax non-cash provision for slow-moving and obsolete inventories of $14,033. During fiscal year 2011, the Company recorded
a pre-tax non-cash benefit for slow-moving and obsolete inventories of $10,363.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(f)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Property and Equipment</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Property and equipment are recorded at cost.
Maintenance and repair items are expensed as incurred. The Company provides for depreciation and amortization by charges to operations,
using the straight-line and declining-balance methods, which allocate the cost of property and equipment over the following estimated
useful lives:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 44%; border-bottom: windowtext 1pt solid; font-weight: bold">Asset Classification</TD>
    <TD STYLE="width: 2%; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="width: 54%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">Estimated Useful Life</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Machinery and equipment</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">2-7 years</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Leasehold improvements</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Shorter of lease term or estimated useful life</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="vertical-align: top">Furniture and fixtures</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">5 years</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">Vehicles</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top">3 years</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Depreciation expense was
$20,269 and $23,874 for the years ended June 30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -35pt"><B>(g)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Significant Customers and Concentration of Credit Risk</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Financial instruments that subject the Company
to credit risk consist primarily of cash equivalents and trade accounts receivable. The Company places its investments with highly
rated financial institutions. The Company has not experienced any losses on these investments to date. At June 30, 2012, receivables
from the Company&rsquo;s two largest customers were 31% and 27% of the total accounts receivable. At June 30, 2011, receivables
from the Company&rsquo;s five largest customers were 26%, 16%, 15%, 14% and 10% of the total accounts receivable. No other customer
accounted for more than 10% of the Company&rsquo;s receivables as of June 30, 2012 and 2011. The Company has not experienced any
material losses related to accounts receivable from individual customers. The Company generally does not require collateral or
other security as a condition of sale rather relying on credit approval, balance limitation and monitoring procedures to control
credit risk of trade account financial instruments. Management believes that allowances for doubtful accounts, which are established
based upon review of specific account balances and historical experience, are adequate.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Revenues from the Company&rsquo;s largest customers,
as a percentage of total revenues, were as follows:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="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>
    <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">2011</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 66%; text-align: left; text-indent: -10pt; padding-left: 10pt">Customer A</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">34</TD>
    <TD STYLE="width: 1%; text-align: left">%</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 13%; text-align: right">22</TD>
    <TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Customer B</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">22</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">24</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Customer C</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">3</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">17</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; text-indent: -10pt; padding-left: 10pt">All others</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">41</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">37</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">&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">100</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">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">100</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<!-- Field: Page; Sequence: 39; Value: 1 -->
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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">No other customer accounted for more than 10%
of the Company&rsquo;s revenues in fiscal years 2012 and 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
(Loss) per Share</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Basic income (loss) per share is computed by
dividing net income or net loss by the weighted average number of shares of common stock outstanding during the period. Diluted
income (loss) per share is computed by dividing net income or net loss (adjusted by adding back interest expense on senior convertible
notes) by the weighted average number of shares of common stock outstanding during the period, plus the number of potentially dilutive
securities outstanding during the period such as stock options and warrants and shares issuable upon conversion of senior convertible
notes. For the year ended June 30, 2011, the effect of such securities was antidilutive and not included in the diluted calculation
because of the net loss generated in that period.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following is the calculation of income
(loss) per share for the years ended June 30, 2012 and 2011:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&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">Year Ended June 30</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<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">2012</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">2011</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: 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(238,238,238)">
    <TD STYLE="width: 66%; text-align: left">Net Income (Loss) &ndash; Basic</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 13%; text-align: right">960,972</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 13%; text-align: right">(1,052,613</TD>
    <TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest Expense on Senior Convertible Notes</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">30,208</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">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net Income (Loss) &ndash; Diluted</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">991,180</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,052,613</TD>
    <TD STYLE="padding-bottom: 2.5pt; 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(238,238,238)">
    <TD>Basic Weighted Average Shares Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1,163,775</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">994,777</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">Potentially Dilutive Securities</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">112,114</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">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 2.5pt">Diluted Weighted Average Shares Outstanding</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">1,275,889</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">994,777</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(238,238,238)">
    <TD>Income (Loss) Per Share</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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; padding-left: 9pt">Basic</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.83</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1.06</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 9pt">Diluted</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.78</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1.06</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The number of shares issuable upon the exercise
of outstanding stock options and warrants that were excluded from the computation as their effect was antidilutive was approximately
620,000 and 1,112,000 for the years ended June 30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(i)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Stock-Based Compensation</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The measurement and recognition of all compensation
costs for all stock-based awards made to employees and the Board of Directors are based upon fair value over the requisite service
period for awards expected to vest. The Company estimates the fair value of share-based awards on the date of grant using the Black-Scholes
option-pricing model. Stock-based compensation costs recognized for the years ended June 30, 2012 and 2011 amounted to $78,344
and $22,704, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(j)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Patents</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Patents are carried at cost less accumulated
amortization of $0 and $718,684 at June 30, 2012 and June 30, 2011, respectively. Such costs are amortized using the straight-line
method over the shorter of their legal or estimated useful lives, generally five to ten years. Amortization expense was $3,099
and $33,731 for the years ended June 30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2011, the Company assigned all of its
currently issued and pending patents, as well as new inventions that it conceives before July 28, 2012, to Intuitive Surgical.
See Note 8 of Notes to Consolidated Financial Statements.</P>

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

<!-- Field: Page; Sequence: 40; Value: 1 -->
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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(k)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Fair Value of Financial Instruments</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Financial instruments consist principally of
cash equivalents, accounts receivable, senior secured convertible notes payable, accounts payable, and accrued expenses. The estimated
fair value of these financial instruments approximates their carrying value due to their short-term nature.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(l)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Long-Lived Assets</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net 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. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(m)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Warranty Costs</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company does not incur future performance
obligations in the normal course of business other than providing a standard one-year warranty on materials and workmanship to
its customers. The Company provides for estimated warranty costs at the time product revenue is recognized. Warranty costs have
been included as a component of cost of goods sold in the accompanying consolidated statements of operations. The following tables
summarize warranty reserve activity for the years ended June 30, 2012 and 2011:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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="font-weight: bold; padding-bottom: 1pt">&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">2011</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 68%; text-align: left; text-indent: -10pt; padding-left: 10pt">Balance at beginning of period</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">25,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">25,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Provision for warranty claims</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1,321</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,658</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Warranty claims incurred</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">(1,321</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">(2,658</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Balance at end of period</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">25,000</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">25,000</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(n)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Research and Development</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Research and development expenses are charged
to operations as incurred. The Company groups development and prototype costs and related reimbursements in research and development.
For the years ended June 30, 2012 and 2011, research and development expense is shown net of reimbursements of $80,023 and $195,676,
respectively, in the accompanying statements of operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(o)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Comprehensive Income</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Comprehensive income or loss is defined as
the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owners
sources. The Company&rsquo;s comprehensive loss for the years ended June 30, 2012 and 2011 was equal to its net loss for the same
periods.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(p)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Income Taxes</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Income taxes are accounted for under the asset
and liability method. 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 income in the period that includes the enactment date. In
assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results of operations
and the current operating environment.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(q)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Segment Reporting</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision
maker, or decision-making group, in making decisions about how to allocate resources and assess performance. The Company&rsquo;s
chief decision-maker is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as
principally one segment. For all periods presented, over 90% of the Company&rsquo;s sales have been to customers in the United
States.</P>

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(r)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Use of Estimates</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The preparation of financial statements in
conformity with accounting standards generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>(s) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent
Accounting Pronouncements</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In December 2011, the FASB issued an accounting
standard update requiring enhanced disclosure about certain financial instruments and derivative instruments that are offset in
the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes
effective retrospectively in the first quarter of the Company's fiscal year ending June 30, 2014. The Company does not expect that
the requirement will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in
nature.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 22.5pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">In
September 2011, the FASB issued an accounting standard update intended to simplify testing goodwill for impairment. The amendment
allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity
determines, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less
than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company's
fiscal year ending June 30, 2013, and early adoption is permitted. The Company does not expect that the requirement will have an
impact on its financial position, results of operations or cash flows as it is disclosure-only in nature.</FONT>&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>(2)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>10% SENIOR SECURED CONVERTIBLE NOTES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June&nbsp;25, 2008, the Company entered
into a Purchase Agreement, as amended on December 11, 2008, with institutional and other accredited investors (the &ldquo;Investors&rdquo;)
pursuant to which it sold a total of $600,000 of 10% Senior Secured Convertible Notes (the &ldquo;Notes&rdquo;) that are convertible
at the Investor&rsquo;s option into a total of 480,000 shares of the Company&rsquo;s common stock at a conversion rate of $1.25.
The Company also issued warrants to purchase a total of 316,800 shares of its common stock at an exercise price of $1.75 per share
(the &ldquo;Warrants&rdquo;). Interest accrues on the Notes at a rate of 10% per year and is payable in cash upon the earlier of
conversion or maturity of the Notes. The original maturity of the Notes was June&nbsp;25, 2010 and the Warrants expire on June&nbsp;25,
2015, subject to extension. By mutual agreement with the Company, the Investors amended the Notes on several dates to extend the
&ldquo;Stated Maturity Date&rdquo; of the Notes. The conversion price of the Notes and the exercise price of the Warrants may be
adjusted downward in the event the Company issues shares of common stock or securities convertible into common stock at a price
lower than the conversion price of the Notes or exercise price of the Warrants at the time of issuance.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to the Purchase Agreement, the Notes
and Warrants were not convertible or exercisable until the Company implemented a 1 for 6 reverse stock split, which required the
approval of its stockholders. On November&nbsp;25, 2008, the Company entered into a Side Letter Agreement in which the Investors
agreed to change the ratio of the reverse split from 1 for 6 to 1 for 25. On December&nbsp;11, 2008, the Company effected a 1 for
25 reverse split of its common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Pursuant to a Registration Rights Agreement
entered into with the Investors on June&nbsp;25, 2008, the Company agreed to file&nbsp;a registration statement with the Securities
and Exchange Commission by the earlier of (i)&nbsp;two days following the effectiveness of the amendment to implement a reverse
stock split, and (ii)&nbsp;December&nbsp;15, 2008, to register the resale of the common stock issuable upon the conversion of the
Notes and the exercise of the Warrants. The Company agreed to keep the registration statement effective until the earlier of (i)&nbsp;the
date on which all the securities have been sold, and (ii)&nbsp;the date on which all the securities may be sold without restriction
pursuant to Rule&nbsp;144 of the Securities Act of 1933.</P>

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Notes contain covenants binding on the
Company and certain events of default, including but not limited, to:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%; text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 5%; text-align: justify">&#9679;</TD>
    <TD STYLE="width: 90%; text-align: justify">the failure of the Company to make a scheduled payment;</TD></TR>
<TR>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">&#9679;</TD>
    <TD STYLE="text-align: justify">the failure of the Company to make payments in excess of $100,000 on any liability or obligation, or if there is an acceleration of the stated maturity of any liability or obligation in excess of $100,000; or</TD></TR>
<TR>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD></TR>
<TR>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">&#9679;</TD>
    <TD STYLE="text-align: justify">the Company entering bankruptcy.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">If an event of default occurs and is uncured
within the allowable grace period, if any, the Investors may declare all amounts under the Notes immediately due and payable and
may pursue any other available remedies.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 15, 2011, the Company repaid Special
Situations Fund III QP, L.P. a principal repayment of $275,000 and accrued interest of $95,486, for a total payment of $370,486.
On December 15, 2011, the Company repaid Special Situations Private Equity Fund, L.P. a principal repayment of $275,000 and accrued
interest of $95,486, for a total payment of $370,486. The Notes held by Special Situations Fund III QP, L.P. and Special Situations
Private Equity Fund, L.P. have been satisfied in full and the obligations thereunder have been terminated.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On March 31, 2012, the remaining Investor,
Arnold Schumsky, further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the principal to July 31,
2012 and to modify the Note such that all accrued and unpaid interest on the Note up to and including March 31, 2012 shall be due
on or before April 13, 2012, on the condition that the Company issue to him a warrant for 5,000 shares of common stock with an
exercise price of $1.20 per share and a term of three years. On April 13, 2012, the Company repaid Mr. Schumsky a payment of the
accrued interest of $18,819, and such payment included all accrued and unpaid interest on the Note up to and including March 31,
2012. On May 8, 2012, the Company issued Mr. Schumsky the warrant according to the terms described in the amended Note. On July
31, 2012, Mr. Schumsky further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the principal to
August 31, 2012. On August 31, 2012, Mr. Schumsky further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo;
of the principal to September 30, 2012</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 10% Senior Secured Convertible Notes consist
of the following:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<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">June 30,<BR> 2012</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">June&nbsp;30,<BR> 2011</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 68%; text-align: left; text-indent: -9pt; padding-left: 9pt">10% Senior Secured Convertible Notes issued on June&nbsp;25, 2008, convertible into common stock at $1.25 per share, bearing interest at 10% per annum. Outstanding principal and accrued interest are due at maturity, September 30, 2012</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">50,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">600,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -0.25in; padding-left: 0.25in">Accrued interest&mdash;10% coupon due on September&nbsp; 30, 2012</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1,250</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">180,833</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">51,250</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">780,833</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, the Company repaid Mr.
Schumsky the outstanding and accrued interest of $2,500 due under his Note and such payment satisfied its obligations in regards
to the accrued interest due on the Note in full. On that same date, Mr. Schumsky presented the outstanding principal balance of
the Note to the Company and agreed to exchange the $50,000 principal balance of his Note for participation in the Company&rsquo;s
September 2012 financing transaction (as described in further detail in Note 9, Subsequent Event) and was awarded units consisting
of 55,555 shares of common stock and 38,889 warrants upon the same terms as the units sold in the September 2012 financing transaction.
Accordingly, the Note held by Mr. Schumsky has been satisfied in full and the obligations thereunder have been terminated.</P>

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

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(3)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>COMMITMENTS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(a)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Related Party Transactions</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company leases one of its facilities from
a corporation owned by an officer-director-shareholder of the Company. The Company is currently a tenant-at-will, paying rent of
$9,000 per month. Total rent expense paid or accrued to related parties was $108,000 in each of fiscal years 2012 and 2011, and
is included in the accompanying consolidated statements of operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company incurred fees to two directors
totaling $20,000 and $25,000 in fiscal years 2012 and 2011, respectively, for consulting services.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(b)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Operating Lease Commitments</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has entered into operating leases
for its office space and equipment that expire at various dates through fiscal year 2014. Total future minimum rental payments
under all non-cancelable operating leases are $31,353 in fiscal year 2013 and $388 in the fiscal years thereafter.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Rent expense on operating leases, excluding
the related party rent described above, was $45,896 and $46,335 for the years ended June 30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(4)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>STOCKHOLDERS&rsquo; EQUITY</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -35pt"><B>(a)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Stock Options</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Stock-based compensation costs recognized during
the year ended June 30, 2012 and 2011 amounted to $78,344 and $22,704, respectively, and were included in the accompanying consolidated
statements of operations in: selling, general and administrative expenses (2012 &mdash; $64,910; 2011 &mdash; $10,000), cost of
goods sold (2012 &mdash; $11,234; 2011 &mdash; $12,704), and research and development expenses, net (2012 &mdash; $2,200; 2011
&mdash; $0). No compensation has been capitalized because such amounts would have been immaterial. There was no net income tax
benefit recognized related to such compensation for the years ended June 30, 2012 or 2011, as the Company is currently in a loss
position. There were 298,800 stock options granted (net) during the year ended June 30, 2012 and no stock options granted during
the year ended June 30, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As of June 30, 2012, the unrecognized compensation
costs related to options vesting in the future is $228,966. The Company uses the Black-Scholes option-pricing model as the most
appropriate method for determining the estimated fair value for the stock awards. The Black-Scholes method of valuation requires
several assumptions: (1) the expected term of the stock award; (2) the expected future stock volatility over the expected term;
and (3) risk-free interest rate. The expected term represents the expected period of time the Company believes the options will
be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility
of the Company&rsquo;s common stock and the risk free interest rate is based on the U.S. Zero-Bond rate. The Company utilizes a
forfeiture rate based on an analysis of the Company&rsquo;s actual experience. The fair value of options at date of grant was estimated
with the following assumptions for options granted in fiscal 2012:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="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">Year Ended</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="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">June 30,<BR> 2012</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">Assumptions:</TD>
    <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; text-indent: -10pt; padding-left: 10pt">Option life</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">5.3 years</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 82%; text-align: left; text-indent: -10pt; padding-left: 10pt">Risk-free interest rate</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right">3.00%</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Stock volatility</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">480%</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Dividend yield</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -10pt; padding-left: 10pt">Weighted average fair value of grants</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">1.07</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Stock Option and Other Compensation Plans:</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The type of share-based payments currently
utilized by the Company is stock options.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has various stock option and other
compensation plans for directors, officers, and employees. The Company has the following stock option plans outstanding as of June
30, 2012: the Precision Optics Corporation, Inc. 2011 Equity Incentive Plan (the &ldquo;2011 Plan&rdquo;); the Precision Optics
Corporation, Inc. 2006 Equity Incentive Plan (the &ldquo;2006 Plan&rdquo;), and the Precision Optics Corporation, Inc. Amended
and Restated 1997 Incentive Plan (the &ldquo;1997 Plan&rdquo;). Vesting periods under the 2011 Plan, the 2006 Plan, and the 1997
Plan are at the discretion of the Board of Directors and typically average three to five years. Options under these Plans are granted
at fair market value on the date of grant and have a term of ten years from the date of grant.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 2011 Plan, which provides eligible participants
(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options
granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.
A total of 325,000 shares of common stock, including shares rolled forward from the 1997 Plan, have been reserved for issuance
under the 2011 Plan. At June 30, 2012, a total of 207,800 stock options are outstanding and 117,200 shares of common stock were
available for future grants under the 2011 Plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 2006 Plan, which provides eligible participants
(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options
granted vest and are exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.
A total of 139,898 shares of common stock, including shares rolled forward from the 1997 Plan, have been reserved for issuance
under the 2006 Plan. At June 30, 2012, a total of 96,200 stock options are outstanding and 43,698 shares of common stock were available
for future grants under the 2006 Plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The 1997 Plan provided eligible participants
(certain employees, directors, consultants, etc.) the opportunity to receive a broad variety of equity based and cash awards. Options
granted vested and were exercisable for periods determined by the Board of Directors, not to exceed 10 years from the date of grant.
Options for a total of 88,938 shares of common stock were outstanding at June 30, 2012 under the 1997 Plan, as amended and restated
in fiscal year 2006. Prior to the adoption of the 2006 Plan, 9,000 stock options were granted in fiscal year 2007 under the 1997
Plan. Upon the adoption of the 2006 Plan, no new awards were granted under the 1997 Plan. No shares are available for future grants
under the 1997 Plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The following tables summarize stock option activity for the two
years ended June 30, 2012:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options Outstanding</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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">Number of<BR> Shares</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Weighted Average<BR> Exercise Price</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&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">Weighted Average<BR> Contractual Life</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 52%; font-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Outstanding at July 1, 2010</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">94,378</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 12%; text-align: right">15.98</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">5.49 years</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Cancellations</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right">(240</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="font-weight: bold; text-align: left; text-indent: -10pt; padding-left: 10pt">Outstanding at June 30, 2011</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">94,138</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">15.97</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">4.50 years</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Grants</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">506,600</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">0.27-1.20</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Cancellations</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">(208,151</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">0.55-13.75</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Outstanding at June 30, 2012</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">392,587</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">4.56</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">8.15 years</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Information related to the stock options outstanding
as of June 30, 2012 is as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Range of Exercise Prices</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Number of</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Shares</B></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Weighted-Average</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Remaining</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Contractual</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Life (years)</B></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Weighted-Average</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Exercise Price</B></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Exercisable</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Number</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>of Shares</B></P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Exercisable</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Weighted-Average</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Exercise Price</B></P></TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 4%">$</TD>
    <TD STYLE="width: 19%; text-align: right">1.20</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right">207,800</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">9.68</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">$</TD>
    <TD STYLE="width: 12%; text-align: right">1.20</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: right">32,800</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">$</TD>
    <TD STYLE="width: 12%; text-align: right">1.20</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>$</TD>
    <TD STYLE="text-align: right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">51,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">9.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">20,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.55</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>$</TD>
    <TD STYLE="text-align: right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">40,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">9.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.27</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>$</TD>
    <TD STYLE="text-align: right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">7.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.35</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>$</TD>
    <TD STYLE="text-align: right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.25</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>$</TD>
    <TD STYLE="text-align: right">6.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6.25</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>$</TD>
    <TD STYLE="text-align: right">7.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">7.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">7.75</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>$</TD>
    <TD STYLE="text-align: right">11.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11.50</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>$</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">50,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">50,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>$</TD>
    <TD STYLE="text-align: right">20.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">37,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">20.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">37,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">20.75</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">$0.27&ndash;$20.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">392,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">8.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">4.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">160,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">9.38</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<!-- Field: Page; Sequence: 45; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The aggregate intrinsic value of the Company&rsquo;s
&ldquo;in-the-money&rdquo; outstanding and exercisable options as of June 30, 2012 and 2011 was $145,410 and $0, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>(b)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Warrants</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On June&nbsp;25, 2008, the Company entered
into a Purchase Agreement, as amended on December 11, 2008, with institutional and other accredited investors pursuant to which
it sold a total of $600,000 of 10% Senior Secured Convertible Notes (the &ldquo;Notes&rdquo;) that are convertible at the investor&rsquo;s
option into a total of 480,000 shares of the Company&rsquo;s common stock at a conversion rate of $1.25. On March 31, 2012, the
remaining Investor, Arnold Schumsky, further amended his remaining Note to extend the &ldquo;Stated Maturity Date&rdquo; of the
principal to July 31, 2012 and to modify the Note such that all accrued and unpaid interest on the Note up to and including March
31, 2012 shall be due on or before April 13, 2012, on the condition that the Company issue to him a warrant for 5,000 shares of
common stock with an exercise price of $1.20 per share and a term of three years. On April 13, 2012, the Company repaid Mr. Schumsky
a payment of the accrued interest of $18,819, and such payment included all accrued and unpaid interest on the Note up to and including
March 31, 2012. On May 8, 2012, the Company issued Mr. Schumsky the warrant according to the terms described in the amended Note.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the quarter ended December 31, 2010,
the Company issued warrants to purchase 100,000 shares of common stock at an exercise price of $1.00 per share to several consultants
to the Company. The warrants are exercisable beginning six months after December 16, 2010 (the issue date) and expire on December
16, 2013. The Black-Scholes option pricing model was used to calculate the fair value of the warrants, which was estimated to be
$0.10 per share, or $10,000 in total. The expense associated with issuing the warrants was recognized ratably over the six-month
vesting period. A non-cash charge of $10,000 was recorded in &ldquo;Selling, General and Administrative Expenses&rdquo; in the
year ended June 30, 2011 in the accompanying Consolidated Statements of Operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In conjunction with the sale of the Notes on
June 25, 2008 mentioned above, the Company issued warrants to purchase an aggregate of 316,800 shares of common stock at an exercise
price of $1.75 per share.&nbsp; In conjunction with the issuance of warrants to purchase 100,000 shares of common stock in December
2010, certain anti-dilution provisions of the existing warrants were triggered. As a result, the number of existing warrants was
increased from 316,800 to 318,621 and the related exercise price was decreased from $1.75 per share to $1.74 per share. In conjunction
with the issuance of warrants to purchase 1,944,475 shares of common stock in September 2012, certain anti-dilution provisions
of the existing warrants were triggered. As a result, the number of existing warrants was increased from 318,621 to 469,831 and
the related exercise price was decreased from $1.74 per share to $1.18 per share. These warrants expire on June 25, 2015.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In February 2007, the Company completed a private
placement with institutional and other accredited investors pursuant to which it sold an aggregate of 400,000 shares of common
stock, at a price of $6.25 per share and warrants to purchase an aggregate of 400,000 shares of common stock at an exercise price
of $8.00 per share. In conjunction with the issuance by the Company of the Notes and warrants on June 25, 2008 and the issuance
of warrants to purchase 100,000 shares of common stock in December 2010, certain anti-dilution provisions of the existing warrants
were triggered. As a result, the number of existing warrants was increased from 400,000 to 599,254 and the related exercise price
was decreased from $8.00 per share to $5.34 per share. These warrants expired on February 1, 2012.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(c)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>Restricted Stock</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 3, 2010, Richard Forkey, who at
the time of the agreement served as the Company&rsquo;s Chief Executive Officer, agreed to reduce his annual salary to $100,000
per year, none of which would be deferred, and reduce his vacation accrual by $43,011, at his new rate of pay, to $10,000. &nbsp;He
also entered into an agreement on December 3, 2010, as amended on October 14, 2011, to convert all $474,646 of his previously deferred
salary into 172,599 shares of the Company&rsquo;s common stock. One-eighth of the shares vested on January 1, 2012, and one-eighth
will vest on the first day of each quarter thereafter, commencing on April 1, 2012, until the shares are fully vested.</P>

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

<!-- Field: Page; Sequence: 46; Value: 1 -->
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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 3, 2010, Joseph Forkey, who at
the time of the agreement served as the Company&rsquo;s Chief Scientific Officer and currently serves as the Company&rsquo;s Chief
Executive Officer, agreed to reduce his vacation accrual by $4,824, at his current rate of pay, to $10,000. &nbsp;Joseph Forkey&rsquo;s
salary will remain the same at $120,000 and none of it will be deferred. He also&nbsp;entered into an agreement on December 3,
2010, as amended on October 14, 2011, to convert all $29,999 of his previously deferred salary into 10,909 shares of the Company&rsquo;s
common stock. One-eighth of the shares vested on January 1, 2012, and one-eighth will vest on the first day of each quarter thereafter,
commencing on April 1, 2012, until the shares are fully vested.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On December 3, 2010, the Company agreed with
Joel Pitlor, one of the Company&rsquo;s directors, to terminate his consulting agreement with the Company. The Company also agreed
on December 3, 2010, as amended on October 14, 2011, to convert all $170,000 of the previously deferred consulting compensation
owed to Mr. Pitlor into 61,818 shares of the Company&rsquo;s common stock. One-eighth of the shares vested on January 1, 2012,
and one-eighth will vest on the first day of each quarter thereafter, commencing on April 1, 2012, until the shares are fully vested.
&nbsp;Mr. Pitlor will remain as a director of the Company.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The shares referenced above totaling 245,326
shares of the Company&rsquo;s common stock were issued in October 2011 pursuant to the Company&rsquo;s 2011 Deferred Compensation
Plan. The shares were registered under the Company&rsquo;s registration statement on Form S-8 filed October 14, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The following table indicates the effects on the Company&rsquo;s
consolidated balance sheet upon the issuance of restricted stock in settlement of liabilities for deferred compensation and professional
services, as indicated above:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: left; padding-bottom: 1pt">&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">Increase<BR> (Decrease)</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 82%; text-align: left; text-indent: -10pt; padding-left: 10pt">Accrued Employee Compensation</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 14%; text-align: right">(504,645</TD>
    <TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Accounts Payable</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">(170,000</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Total Current Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">(674,645</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Total Stockholders&rsquo; Equity (Deficit)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD>
    <TD STYLE="text-align: right">674,645</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>(5)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>INCOME TAXES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have identified our federal tax return and
our state tax return in Massachusetts as &ldquo;major&rdquo; tax jurisdictions. The periods subject to examination for our federal
and state income tax returns are the years ended in 2009 and thereafter. We believe our income tax filing positions and deductions
will be sustained on audit and we do not anticipate any adjustments that would result in a material change to our financial position.
Therefore, no liabilities for uncertain income tax positions have been recorded.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The provision for income taxes in the accompanying consolidated
statements of operations consists of the minimum statutory state income tax liability of $912 and $912 for the years ended June
30, 2012 and 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">A reconciliation of the federal statutory rate to the Company&rsquo;s
effective tax rate for the two years ended June 30 is as follows:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="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>
    <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">2011</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="width: 64%; text-align: left; text-indent: -10pt; padding-left: 10pt">Income tax expense (benefit) at federal statutory rate</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right">34.0</TD>
    <TD STYLE="width: 1%; text-align: left">%</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right">(34.0</TD>
    <TD STYLE="width: 1%; text-align: left">%)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Increase (decrease) in tax resulting from:</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <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(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">State taxes, net of federal benefit</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">6.3</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(6.3</TD>
    <TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Change in valuation allowance</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">(94.3</TD>
    <TD STYLE="text-align: left">)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">46.1</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Nondeductible items</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1.7</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1.0</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Prior-year tax adjustments</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">48.8</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">1.5</TD>
    <TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">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">3.6</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">(8.2</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; text-indent: -10pt; padding-left: 10pt">Effective tax rate</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">0.1</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">0.1</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<!-- Field: Page; Sequence: 47; Value: 1 -->
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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page --><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The components of deferred tax assets and liabilities
at June 30, 2012 and 2011 are approximately as follows:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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="font-weight: bold; padding-bottom: 1pt">&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">2011</TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Deferred tax 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="width: 64%; text-align: left; text-indent: -10pt; padding-left: 10pt">Net operating loss carry forwards</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 14%; text-align: right">1,913,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD>
    <TD STYLE="width: 14%; text-align: right">2,735,000</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left">Tax credit carry forwards</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">362,000</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">347,000</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; text-indent: -10pt; padding-left: 10pt">Reserves and accruals not yet deducted for tax purposes</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">451,000</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">549,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; text-indent: -10pt; padding-left: 10pt">Total deferred tax assets</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">2,726,000</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD>
    <TD STYLE="text-align: right">3,631,000</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; text-indent: -10pt; padding-left: 10pt">Valuation allowance</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">(2,726,000</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">(3,631,000</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(238,238,238)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; text-indent: -10pt; padding-left: 10pt">Net deferred tax asset</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&ndash;&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has provided a valuation allowance
to reduce the net deferred tax asset to an amount the Company believes is &ldquo;more likely than not&rdquo; to be realized. The
valuation allowance decreased in fiscal 2012 by approximately $905,000. The decrease in the valuation allowance was due primarily
to adjustments to net operating loss carryforwards of prior years and utilization of loss carryforwards to offset taxable income
in fiscal year 2012.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">At June 30, 2012, the Company had federal and
state net operating loss carry forwards of approximately $4,200,000 and $2,200,000, respectively, which will, if not used, expire
at various dates from 2013 through 2031. In addition, the Company had net operating loss carry forwards from its Hong Kong operations
of approximately $1,900,000, which carry forward indefinitely.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(6)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>PROFIT SHARING PLAN</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The Company has a defined contribution 401(k)
profit sharing plan. Employer profit sharing and matching contributions to the plan are discretionary. No employer profit sharing
or matching contributions were made to the plan in fiscal years 2012 and 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: -0.5in"><B>(7)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>SALE OF ASSETS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In fiscal year 2012, the Company sold equipment
that was previously written off for proceeds totaling $10,226 and recorded a gain of $10,226.&nbsp; In fiscal year 2011, the Company
sold equipment that was previously written off for proceeds totaling $35,967 and recorded a gain of $35,967. These gains are included
within operating expenses in the accompanying consolidated statements of operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B>(8)<FONT STYLE="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>SALE OF PATENTS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 28, 2011, the Company entered into
an asset purchase agreement with Intuitive Surgical Operations, Inc. (&ldquo;Intuitive Surgical&rdquo;), in which it received gross
proceeds of $2,500,000 (less transaction expenses of&nbsp;&nbsp;$36,829) in connection with the sale of certain intellectual property.
Pursuant to the agreement, the Company agreed to assign to Intuitive Surgical all of its currently issued and non-expired patents
and pending patent applications, and Intuitive Surgical agreed to grant back to the Company a royalty-free, worldwide license to
the patents in all fields outside of medical robotics, except in certain exceptional circumstances.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In connection with this agreement, the Company
recorded a gain on the sale of such intellectual property of $2,276,286 in the quarter ended September 30, 2011.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>(9)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SUBSEQUENT
EVENT</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, the Company closed on
agreements with accredited investors (the &ldquo;Investors&rdquo;) for the sale and purchase of units consisting of an aggregate
of (i) 2,777,795 shares of the Company&rsquo;s common stock, and (ii) warrants to purchase an aggregate of 1,944,475 shares of
common stock, at a per unit price of $0.90. Each unit consisted of one share of common stock and 70% warrant coverage. The warrants
have an exercise price of $1.25 per share, subject to adjustment and a call provision if certain market price targets are reached,
will expire five years from September 28, 2012, and are exercisable in whole or in part, at any time prior to expiration. Certain
directors and officers participated in the offering and purchased a total aggregate amount of approximately $80,000 of units in
the offering.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company received $2.5 million in gross proceeds from the
offering. The Company retained Loewen, Ondaatje, McCutcheon USA LTD as the exclusive placement agent for the offering. In addition
to the payment of certain cash fees upon closing of the offering, the Company issued a warrant to the placement agent to purchase
up to 194,446 shares of common stock on substantially similar terms to the warrants issued in the offering, except that the placement
agent warrant has an exercise price of $0.95 per share. The Company anticipates using the net proceeds from the offering to fund
start-up costs associated with the previously-announced order for micro endoscopes as well as other recently received orders for
new products in addition to working capital needs and for general corporate purposes.</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">In conjunction with the offering, the Company also entered into
a registration rights agreement dated September 28, 2012 with the Investors, whereby it is obligated to file a registration statement
with the Securities and Exchange Commission (the &ldquo;SEC&rdquo;) on or before thirty calendar days after September 28, 2012
to register the resale by the Investors of the 2,777,795 shares of the common stock purchased in the offering, and the 1,944,475
shares of common stock underlying the warrants purchased in the offering. If a registration statement covering the securities is
not filed with the SEC prior to the 30th day filing deadline (the &ldquo;Filing Deadline&rdquo;), the Company will have to pay
an amount equal to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject to certain
conditions. The Company is also obligated to use all commercially reasonable efforts to have the registration statement declared
effective by the SEC within 60 days after the registration statement is filed, or 90 days if the Company receives comments on the
registration statement from the SEC. If there is not an effective registration statement in place by the 60th day after the Filing
Deadline, or the 90th day after the Filing Deadline if the Company receives comments from the SEC, the Company will have to pay
an amount equal to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject to certain
conditions.</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">Pursuant to the Tax Reform Act of 1986, the utilization of net
operating loss carryforwards and other tax benefits are subject to an annual limitation if a cumulative change of ownership of
more than 50% occurs over a three-year period. As a result of the September 2012 private placement of the Company&rsquo;s common
stock, the Company believes it may have triggered significant limitations on the utilization of those tax attributes. The limitations,
if triggered, would allow the use of the value of approximately $34,000 of Federal carryforward losses annually for the next twenty
years, and the same amount for state purposes for 20 years.</P>



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

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


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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>AND RESULTS OF OPERATIONS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> The following discussion and analysis should
be read in conjunction with the Financial Statements and Notes thereto, and other financial information included elsewhere in
this prospectus and our Annual Report on Form 10-K, including our audited consolidated financial statements for the year ended
June 30, 2012 included in our Annual Report, as filed with the Securities and Exchange Commission on October 15, 2012 and amended
on October 26, 2012 to furnish Exhibit 101 to the Form 10-K, which contains the XBRL (eXtensible Business Reporting Language)
Interactive Data File for the financial statements and notes included thereto. This Management&rsquo;s Discussion and Analysis
of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our
business. The following discussion sets forth certain factors we believe could cause actual results to differ materially from
those contemplated by the forward-looking statements. </P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> We have been a developer and manufacturer
of advanced optical instruments since 1982. Today, the vast majority of our business is the design and manufacture of high-quality
medical devices and approximately 10% of our business is design and manufacture of military and industrial products. Our medical
instrumentation line includes traditional endoscopes and endocouplers as well as other custom imaging and illumination products
for use in minimally invasive surgical procedures. Much of our recent development efforts have been targeted at the development
of next generation endoscopes. For the last ten years, we have funded internal research and development programs to develop next
generation capabilities for designing and manufacturing 3D endoscopes and very small Microprecision&trade; lenses, anticipating
future requirements as the surgical community continues to demand smaller and more enhanced imaging systems for minimally invasive
surgery. Our unique proprietary technology in these areas, combined with recent developments in the areas of 3D displays and millimeter
sized image sensors, has allowed us to begin commercialization of these technologies. We believe that new products based on these
technologies provide enhanced imaging for existing surgical procedures and can enable development of many new procedures. While
we have continued to provide custom optics solutions to our medical device company customers, we simultaneously focused significant
development efforts on further advancement of proprietary technology for 3D endoscopy and Microprecision&trade; optical components
and micro medical camera assemblies. </P>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We are registered to the ISO&nbsp;9001:2008
and ISO&nbsp;13485:2003 Quality Standards and comply with the FDA Good Manufacturing Practices and the European Union Medical Device
Directive for CE marking of our medical products. Our internet website is www.poci.com. Information on our website is not intended
to be integrated into this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The areas in which we do business are highly
competitive and include both foreign and domestic competitors. Many of our competitors are larger and have substantially greater
resources than we do. Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may
seek to produce products or services that compete with ours. We routinely outsource specialized production efforts as required
to obtain the most cost effective production. Over the years, we have achieved extensive experience with other optical specialists
worldwide.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Since the 1990s, we have maintained a Hong
Kong subsidiary to support business and quality control activities as required throughout Asia. We believe that the cost savings
from such production are essential to our ability to compete on a price basis in the medical products area in particular and to
our profitability in general.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe that competition for sales of our
medical products and services, which have been principally sold to original equipment manufacturer, or OEM, customers, is based
on performance and other technical features, as well as other factors, such as scheduling and reliability, in addition to competitive
price.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We believe that our future success depends
to a large degree on our ability to continue to conceive and to develop new optical products and services to enhance the performance
characteristics and methods of manufacture of existing products. Accordingly, we expect to continue to seek to obtain product-related
design and development contracts with customers and to selectively invest our own funds on research and development, particularly
in the areas of Microprecision&trade; optics, micro medical cameras and 3D endoscopes.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Critical Accounting Policies and Estimates</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> Our critical accounting policies are
set forth in the Notes to our Financial Statements contained in our Annual Report on Form&nbsp;10-K
for the year ended June&nbsp;30, 2012 filed with the Securities and Exchange Commission on October
15, 2012 and amended on October 26, 2012 to furnish Exhibit 101 to the Form 10-K, which contains the XBRL (eXtensible Business
Reporting Language) Interactive Data File for the financial statements and notes included thereto. </P>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Liquidity and Capital Resources</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In July 2011, we received $2.5 million in connection
with an asset purchase agreement with Intuitive Surgical Operations, Inc. This influx of capital allowed us to retire a substantial
portion of outstanding long term debt and to satisfy operating cash requirements through September 2012.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, we closed on agreements
with accredited investors (the &ldquo;Investors&rdquo;) for the sale and purchase of units consisting of an aggregate of (i) 2,777,795
shares of our common stock, and (ii) warrants to purchase an aggregate of 1,944,475 shares of common stock, at a per unit price
of $0.90. Each unit consisted of one share of common stock and 70% warrant coverage. The warrants have an exercise price of $1.25
per share, subject to adjustment and a call provision if certain market price targets are reached, will expire five years from
September 28, 2012, and are exercisable in whole or in part, at any time prior to expiration. We received $2.5 million in gross
proceeds from the offering. Certain directors and officers participated in the offering and purchased a total aggregate amount
of approximately $80,000 of units in the offering.</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp; In conjunction with the offering,
we also entered into a registration rights agreement dated September 28, 2012 with the Investors, whereby we are obligated to
file a registration statement with the Securities and Exchange Commission on or before thirty calendar days after September 28,
2012 to register the resale by the Investors of the 2,777,795 shares of the common stock purchased in the offering, and the 1,944,475
shares of common stock underlying the warrants purchased in the offering. If a registration statement covering the securities
is not filed with the SEC prior to the 30<SUP>th</SUP> day filing deadline (the &ldquo;Filing Deadline&rdquo;), we will have to
pay an amount equal to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject to certain
conditions. We are also obligated to use all commercially reasonable efforts to have the registration statement declared effective
by the SEC within 60 days after the registration statement is filed, or 90 days if we receive comments on the registration statement
from the SEC. If there is not an effective registration statement in place by the 60<SUP>th</SUP> day after the Filing Deadline,
or the 90<SUP>th</SUP> day after the Filing Deadline if we receive comments from the SEC, we will have to pay an amount equal
to 1.0% of the aggregate amount invested by each Investor each month as liquidated damages, subject to certain conditions. We
filed the registration statement with the SEC on October 26, 2012, prior to the Filing Deadline. </P>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We intend to build upon recent successes in
operational results, technology development and new product introductions. We believe the following technology areas continue to
represent significant opportunities for future sales growth:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">Microprecision&trade; optical elements and micro medical camera assemblies
with sizes on the order of 1 mm and smaller, that enable the introduction of imaging capabilities in locations in the body previously
inaccessible; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">next generation handheld 3D endoscopes that provide high definition
3D images for use in minimally invasive surgery.</FONT></TD></TR></TABLE>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We compete in a highly technical, very competitive
and in most cases, price driven segment of the medical instrument marketplace where products can take years to develop and introduce
to distributors and end users. Furthermore, research and development, manufacturing, marketing and distribution activities are
strictly regulated by the FDA, ISO and other regulatory bodies that, while intended to enhance the ultimate quality and functionality
of products produced, can contribute to the significant cost and time needed to maintain existing products and develop and introduce
product enhancements and new product innovations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have traditionally funded working capital
needs through product sales, management of working capital components of our business, and by cash received from public and private
offerings of our common stock, warrants to purchase shares of our common stock and convertible notes. We have incurred quarter
to quarter operating losses during our efforts to develop current products including Microprecision&trade; optical elements, micro
medical camera assemblies and 3D endoscopes. Our management expects that such operating losses will continue until sales increase
to breakeven and profitable levels. Our management also believes that the opportunities represented by these products have the
potential to generate sales increases to achieve breakeven and profitable results.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I> Comparison of Quarters Ended September 30, 2012 and 2011 </I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> During the quarter ended September&nbsp;30,
2012, we incurred a net loss from operations of $356,844 and used cash in operating activities of $228,126. As of September&nbsp;30,
2012, cash and cash equivalents were $2,337,694, accounts receivable were $298,621, and current liabilities were $984,227. </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"> Capital equipment expenditures during
the first quarter of fiscal year 2013 and fiscal year 2012 were $0. Future capital equipment expenditures will be dependent upon
future sales and success of on-going research and development efforts. </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"> Contractual cash commitments for the
fiscal years subsequent to September&nbsp;30, 2012 are summarized as follows: </P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> 2013 </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> 2014 </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Thereafter </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Total </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD> Operating Leases </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 28,914 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 9,176 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 2,134 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> $ </TD>
    <TD STYLE="text-align: right"> 40,224 </TD>
    <TD> &nbsp; </TD></TR>
<TR>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </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"> &nbsp; </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> We have contractual cash commitments
related to open purchase orders for fiscal year 2013 of approximately $119,000. </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"><I> Comparison of Fiscal Years Ended June 30, 2012 and 2011 </I></P>



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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have sustained recurring net operating losses
for several years. During the year ended June 30, 2012, we incurred a net loss from operations of $1,284,729 and used cash in operations
of $1,585,515. For the quarter ended June 30, 2012, cash used for operating activities was $270,069, and our operating loss for
the quarter was $218,294. As of June 30, 2012, cash and cash equivalents were $145,923, accounts receivable were $341,900, and
current liabilities were $705,522.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Capital equipment expenditures during fiscal
year 2012 and 2011 were $0. Future capital equipment expenditures will be dependent upon future sales and success of on-going research
and development efforts.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Contractual cash commitments for the fiscal
years subsequent to June 30, 2012 are summarized as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2013</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2014</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Thereafter</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 39%">Operating Leases</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 12%; text-align: right">31,353</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 12%; text-align: right">2,910</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 9%; text-align: right">&ndash;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 12%; text-align: right">34,263</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Principal &amp; Interest (1)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">51,250</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">51,250</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD>Totals</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">82,603</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">2,910</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">&ndash;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">$</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">85,513</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: left; width: 5%">(1)</TD>
    <TD STYLE="text-align: left; width: 95%">This amount may be reduced to the extent the holder of the Senior Secured Convertible Notes elects to convert the principal
on the Notes into our common stock.</TD></TR>
</TABLE>



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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have contractual cash commitments related
to open purchase orders for fiscal year 2013 of approximately $74,000.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Results of Operations</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I> Comparison of Quarters Ended September 30, 2012 and 2011 </I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> Our total revenues for the quarter
ended September 30, 2012, the first quarter of our fiscal year 2013, were $563,398, as compared to $504,749 for the same period
in the prior year, an increase of $58,649, or 11.6%. The increase in revenues for the quarter ended September 30, 2012 was primarily
due to higher unit volume sales of the advanced surgical visualization system used in spinal surgery, including deliveries of
a new extension of the product line, partially offset by lower sales of micro optics, endoscopes and endocouplers. </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"> Revenues from our largest customers,
as a percentage of our total revenues, for the quarters ended September 30, 2012 and 2011, were as follows: </P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> 2012 </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> 2011 </TD>
    <TD STYLE="font-weight: bold"> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 66%; padding-left: 0.25in; text-indent: -0.25in"> Customer A </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 13%; text-align: right"> 54% </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 13%; text-align: right"> 14% </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 0.25in; text-indent: -0.25in"> Customer B </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 21 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 32 </TD>
    <TD> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 0.25in; text-indent: -0.25in"> All Others </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="border-bottom: black 1pt solid"> &nbsp; </TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"> 25 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="border-bottom: black 1pt solid"> &nbsp; </TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"> 54 </TD>
    <TD> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="border-bottom: black 2.25pt double"> &nbsp; </TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"> 100% </TD>
    <TD STYLE="padding-bottom: 2.5pt"> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="border-bottom: black 2.25pt double"> &nbsp; </TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"> 100% </TD>
    <TD STYLE="padding-bottom: 2.5pt"> &nbsp; </TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"> &nbsp;&nbsp;&nbsp; </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> No other customer accounted for more
than 10% of our revenues during those quarters. </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"> Gross profit for the quarter ended
September 30, 2012 was $129,473, as compared to $139,294 for the same period in the prior year, which reflects a decrease of $9,821.
Gross profit for the quarter ended September 30, 2012 as a percentage of our revenues was 23.0%, a decrease from the gross profit
percentage of 27.6% for the same period in the prior year. The decrease in our gross profit percentage was due primarily to higher
consulting expenses, less favorable product mix and certain nonrecurring manufacturing startup expenses related to the introduction
of new products in the quarter ended September 30, 2012 compared to the same period in the prior year. Our quarterly gross profit
and gross profit percentage depend on a number of factors, including overall sales volume and mix of products sold among others,
and therefore vary from quarter to quarter. </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"> Research and development expenses were
$207,291 for the quarter ended September 30, 2012, compared to $151,190 for the same period in the prior year, an increase of
$56,101, or 37.1%.&nbsp;The increase in the quarter ended September 30, 2012 compared to same period in the prior year was primarily
due to higher labor and materials costs incurred on product development activities. Quarterly research and development expenses
depend on our assessment of new product opportunities and available resources. Research and development expenses were net of reimbursement
of related costs of $17,252 and $15,378 during the quarters ended September 30, 2012 and 2011, 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; text-align: justify"> Selling, general and administrative
expenses were $280,964 for the quarter ended September 30, 2012, compared to $253,356 for the same period in the prior year, an
increase of $27,608, or 10.9%.&nbsp;The increase in the quarter ended September 30, 2012 compared to the same period in the prior
year was primarily due to higher consulting and insurance expenses. </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"> The gain on sale of patents of $2,276,286 reflected in the
quarter ended September 30, 2011 represents the gain on the sale of certain intellectual property to Intuitive Surgical Operations,
Inc. in July 2011. </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"> No income tax provision was recorded
in the first quarter of fiscal year 2012 because of the availability of loss carryforwards to offset taxable income in fiscal
year 2012. </P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I> Comparison of Fiscal Years Ended June 30, 2012 and 2011 </I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Total revenues for fiscal year 2012 were $2,152,396,
a decrease of $92,741, or 4.1%, from fiscal year 2011 revenues of $2,245,137. The decrease in revenues was due to lower unit volume
sales of micro optics and lower unit volume sales of the advanced surgical visualization system used in spinal surgery, partially
offset by higher sales of endoscopes. The reduction in unit volume sales was accompanied by decreases in average product prices
totaling approximately $25,000.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Revenues from our largest customers, as a percentage of total revenues,
were as follows:</P>

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

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2012</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">2011</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 64%; padding-left: 10pt; text-indent: -10pt">Customer A</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right">34</TD>
    <TD STYLE="width: 1%">%</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 14%; text-align: right">22</TD>
    <TD STYLE="width: 1%">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Customer B</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">24</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Customer C</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">17</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">All others</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">41</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">37</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 10pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">100</TD>
    <TD>%</TD>
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right">100</TD>
    <TD>%</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">No other customer accounted for more than 10%
of our revenues in fiscal years 2012 and 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Gross profit for fiscal year 2012 of $557,406
reflected a decrease of $194,710 compared to fiscal year 2011 gross profit of $752,116. Gross profit as a percentage of revenues
decreased from 33.5% in fiscal year 2011 to 25.9% in fiscal year 2012. The decrease in our gross profit percentage was due primarily
to lower overall unit sales volume, unfavorable product mix, and by higher provisions for slow-moving and obsolete inventories
in fiscal year 2012 compared to fiscal year 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> Research and development expenses,
net were $664,696 for fiscal year 2012 compared to $825,033 for fiscal year 2011. The decrease of $160,337, or 19.4%, was due
primarily to lower spending on research and development related efforts, partially offset by lower reimbursements of related costs
from customers, which decreased by $115,653, or 59.1%, in fiscal year 2012 compared to fiscal year 2011. Research and development
expenses depend on our assessment of new product opportunities and available resources. Research and development expenses were
net of reimbursement of related costs of $80,023 during fiscal year 2012 and $195,676 during fiscal year 2011. </P>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Selling, general and administrative expenses
increased by $229,156, or 23.9%, to $1,187,665 for fiscal year 2012 compared to $958,509 for fiscal year 2011. The increase was
primarily due to a reduction in the accrued vacation liabilities for certain officers in connection with the settlement of deferred
compensation liabilities recorded in fiscal year 2011, higher legal and accounting expenses, and higher noncash stock compensation
expenses primarily recorded in the quarter ended March 31, 2012.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> The gain on sale of patents of $2,276,286
in fiscal year 2012 reflects gross proceeds of $2,500,000 (less transaction expenses of $36,829 and
book value of patents of $186,885) in connection with the sale of certain intellectual property to Intuitive Surgical Operations,
Inc. in July 2011. </P>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The gain on sale of assets and other in fiscal
years 2012 and 2011 of $10,226 and $39,518, respectively, represents primarily the sale of previously written off assets for proceeds
of $10,226 and $39,518, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Interest expense decreased by $29,792 during
fiscal year 2012 to $30,208 compared to the fiscal year 2011 total of $60,000. The decrease was due to a partial repayment of $740,972
of the 10% Senior Convertible Notes in December 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The income tax provisions in fiscal years 2012
and 2011 represent the minimum statutory state income tax liability.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Known Trends and Uncertainties That May&nbsp;Affect
Future Results</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> During
                                                                                               fiscal year 2010 after implementing
                                                                                               a number of changes to reduce cash
                                                                                               usage and increase sales and profitability,
                                                                                               our cash flow was positive for
                                                                                               the first time in many years. In
                                                                                               fiscal year 2011, the major focus
                                                                                               of our senior management shifted
                                                                                               to finding a long-term solution
                                                                                               to our obligations under the 10%
                                                                                               Senior Secured Convertible Notes
                                                                                               which initially became due just
                                                                                               before the beginning of fiscal
                                                                                               year 2011. While we continued to
                                                                                               work during fiscal year 2011 to
                                                                                               advance product development and
                                                                                               sales and marketing efforts, the
                                                                                               requirement to find a solution
                                                                                               for the Notes while simultaneously
                                                                                               continuing operations of our Company
                                                                                               with limited capital resources
                                                                                               resulted in an overall reduction
                                                                                               in sales volume and delay of business
                                                                                               plans. With the consummation of
                                                                                               an asset purchase agreement with
                                                                                               Intuitive Surgical in July 2011,
                                                                                               we received sufficient cash to
                                                                                               retire the Notes, and to provide
                                                                                               working capital for our Company.
                                                                                               On September 28, 2012, we received
                                                                                               $2.5 million in connection with
                                                                                               the private placement of stock
                                                                                               and warrants, which we anticipate
                                                                                               will be used for working capital
                                                                                               purposes and for the development
                                                                                               of new products. </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"> For the quarter ended September 30,
2012, revenues from our largest customer were 54% of total sales. This percentage increase resulted in part from a significant
increase in sales to this customer compared to the quarter ended September 30, 2011. The concentration of sales to certain significant
customers may fluctuate depending on factors such as the magnitude and the timing of receipt and fulfillment of customer orders,
and may vary significantly from quarter to quarter. </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: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Due to the introductory stage of many of our
new products and the unpredictable timing of orders from customers, it is difficult to predict with certainty the detailed rate
of future revenue growth. However, during the last 12 months, we have received significant new orders for a number of new products
including an approximate $1 million order for small endoscopes and an approximate $250,000 order for micro medical camera assemblies,
both of which rely on our Microprecision&trade; lens technology. Also, we expect that current discussions with existing and new
potential customers could lead to increases in our revenues. To continue to support orders for new products as well as ongoing
and future discussions, we intend to continue to develop and commercialize new products and technical innovations, in particular:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">new components and instruments utilizing our patented Microprecision&trade;
lens technology for optical components and micro medical camera assemblies with sizes on the order of 1 mm and smaller; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">new handheld 3D endoscopes for use in minimally invasive surgery.</FONT></TD></TR></TABLE>



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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Over the past few years, we have implemented
significant changes in new product and technology development by shifting the emphasis of research and development efforts from
developing underlying technologies to commercializing the applications of these new technologies. These efforts have already been
realized to some degree in the area of Microprecision&trade; lenses with ongoing shipments now in place and with shipments against
new orders already received for micro medical camera assemblies expected to begin during fiscal year 2013. Recent initiatives in
the area of Microprecision&trade; lenses address specific customer opportunities in different medical and military applications.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have developed and manufactured prototypes
of a new 3D endoscope with high definition quality imaging and 10 mm diameter for use in general laparoscopic surgery. This next
generation 3D endoscope has been evaluated by a number of medical professionals and has been received enthusiastically. We believe
that with the advent of commercially available high quality flat panel 3D displays, hand-held 3D endoscopy represents an opportunity
for sales growth for our Company.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Off-Balance Sheet Arrangements</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We currently have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">There have been no disagreements with our independent
registered public accounting firm in regards to accounting and financial disclosure.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As a smaller reporting company, as defined
by Rule&nbsp;12b-2 of the Exchange Act and in Item 10(f)(1)&nbsp;of Regulation S-K, we are electing scaled disclosure reporting
obligations and therefore are not required to provide the information requested by this Item.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Identification of Directors and Executive
Officers</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Set forth below is certain information with
respect to the individuals who are our directors and executive officers as of June 30, 2012.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 23%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: justify">Name</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 5%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: justify">Age</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 68%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: justify">Position(s) or Office(s) Held</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; text-align: justify">Joseph N. Forkey</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">44</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Chairman of the Board of Directors, Chief Executive Officer, President and Treasurer</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; text-align: justify">Jack P. Dreimiller</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">64</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Senior Vice President and Chief Financial Officer</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; text-align: justify">Donald A. Major</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">51</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Executive Vice President for Corporate Development and Director</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; text-align: justify">Richard E. Forkey</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">72</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Director and Advisor to the Chief Executive Officer</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; text-align: justify">Richard B. Miles</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">69</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Director</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; text-align: justify">Joel R. Pitlor</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">74</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: justify">Director</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Board Composition.</B> Our Board of Directors
is divided into three classes that are as nearly equal in number as possible, with each class serving for a staggered term of office.
Only one class is elected each year. Each director serves a three year term and until his or her successor has been duly elected
and qualified. Our Board currently consists of five directors. Our Class I director is Richard E. Forkey. Our Class II directors
are Joel R. Pitlor and Donald A. Major. Our Class III directors are Joseph N. Forkey and Richard Miles.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Biographies and Qualifications of Our Executive
Officers and Directors. </B>The biographies of our executive officers and directors and certain information regarding each director&rsquo;s
experience, attributes, skills and/or qualifications that led to the conclusion that the individual should be serving as an executive
officer and/or director of our Company are as follows:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Dr. Joseph N. Forkey</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> &nbsp;Dr.
                                                                                               Joseph N. Forkey, son of Richard
                                                                                               E. Forkey, has served as Chairman
                                                                                               of our Board of Directors, Chief
                                                                                               Executive Officer, President and
                                                                                               Treasurer since February 8, 2011.
                                                                                               Dr. Forkey has been a director
                                                                                               of our Company since 2006. He served
                                                                                               as our Executive Vice President
                                                                                               and Chief Scientific Officer from
                                                                                               April 2006 to February 2011 and
                                                                                               held the position of our Chief
                                                                                               Scientist from September 2003 to
                                                                                               April 2006. Since joining us, he
                                                                                               has been involved in general technical
                                                                                               and management activities of our
                                                                                               Company, as well as investigations
                                                                                               of opportunities that leverage
                                                                                               our newly developed technologies.
                                                                                               Dr. Forkey holds B.A. degrees in
                                                                                               Mathematics and Physics from Cornell
                                                                                               University, and a Ph.D. in Mechanical
                                                                                               and Aerospace Engineering from
                                                                                               Princeton University. Prior to
                                                                                               joining us, Dr. Forkey spent seven
                                                                                               years at the University of Pennsylvania
                                                                                               Medical School as a postdoctoral
                                                                                               fellow and research staff member.
                                                                                               Dr. Forkey is a valuable member
                                                                                               of our Board due to his depth of
                                                                                               scientific, operating, strategic,
                                                                                               transactional, and senior management
                                                                                               experience in our industry. Additionally,
                                                                                               Dr. Forkey has held positions of
                                                                                               increasing responsibility at our
                                                                                               Company and holds an intimate knowledge
                                                                                               of our Company due to his longevity
                                                                                               in the industry and with us. </P>



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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Jack P. Dreimiller</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Mr. Jack P. Dreimiller has served as our Senior
Vice President, Finance and Chief Financial Officer since August 15, 2008. Prior to that time, he served as our Senior Vice President,
Finance and Chief Financial Officer from April 1992 until June 2005, and as an independent consultant to our Company from June
2005 to December 2005. Since June 2005, he has served as an independent consultant serving various roles as financial/accounting
executive, including interim Chief Financial Officer, for a number of companies. Mr. Dreimiller is a
Certified Public Accountant (inactive) and holds a BS in Business Administration from the University of Buffalo. He has over twenty-five
years&rsquo; experience in various senior financial management positions, including audit and consulting experience with an international
accounting firm, and Controller and VP Finance experience with both small firms and multi-national corporations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Donald A. Major</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective February 9, 2012, our Board
of Directors appointed Mr. Donald A. Major as our Executive Vice President for Corporate Development, in addition to his
ongoing role as a member of our Board of Directors. He has served as a member of our Board since 2005. Mr. Major is
co-founder &amp; Chief Manager of Window2Decor, LLC, a start-up e-commerce retailer of window coverings and
complimentary home accent products, and has been employed as an independent consultant since October 2007, providing
companies with interim management, turnaround, restructuring and reorganization services as well as sourcing services for a
private equity firm. From October 2006 to May 2007, he served as Vice President of Corporate Development of Advanced
Duplication Services LLC. From February 2002 to late 2008, Mr. Major served as Vice President and Treasurer of Anderson
Entertainment, LLC (formerly Digital Excellence LLC), which was owned by a private equity firm and sold to Advanced
Duplication Services LLC. He earned his B.A. in Accounting in 1984 from Michigan State University. He is a Certified Public
Accountant (inactive) and has experience in the field of public accounting and in financial officer positions in publicly
held and start-up medical device companies. Mr. Major is a valuable member of our Board due to his depth of operating,
financial, accounting, management, and corporate efficiency experience.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Richard E. Forkey</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Effective February 8, 2011, Mr. Richard E.
Forkey resigned as Chief Executive Officer, President, and Treasurer of our Company. He had served in that position since he founded
our Company in 1982. Mr. Forkey remains a director of our Company, as he has since our inception in 1982, and also holds the executive
position of Advisor to the Chief Executive Officer. Mr. Forkey is a valuable member of our Board due to his depth of operating,
strategic, commercial, and senior management experience in our industry and his intimate knowledge of our Company as he was our
original founder and served as our Chief Executive Officer for nearly thirty years.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Richard B. Miles</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Professor Richard B. Miles has been a member
of the faculty at Princeton University since 1972, and serves as the Director of the Applied Physics Group in Princeton University&rsquo;s
Mechanical and Aerospace Engineering Department. Professor Miles is a valuable member of our Board due to his depth of scientific
experience and familiarity with the field of our technologies, the academic community, and the latest developments in science and
technology.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Joel R. Pitlor</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Mr. Joel R. Pitlor has, since 1979, served
as president of J.R. Pitlor, a management consulting firm which he founded that provides strategic business planning for executive
officers. Mr. Pitlor has provided business planning consultation to us since 1983. Mr. Pitlor is a valuable member of our Board
due to his depth of operating, strategic, financial planning, and management experience. Additionally, Mr. Pitlor has a detailed
knowledge of the history of our Company having advised senior management for over 25 years.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Other Involvement in Certain Legal Proceedings</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">None of our directors or executive officers
has been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against any
of our directors or executive officers during the last ten years that we consider material to the evaluation of the ability and
integrity of any director or executive officer.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Executive and Director Compensation</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Summary Compensation</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table sets forth all compensation
for the last two completed fiscal years ended June 30, 2012 and 2011 awarded to, earned by, or paid to our Principal Executive
Officer and our most highly compensated employee, referred to herein as the &ldquo;Named Executive Officers.&rdquo; No other executive
officer earned over $100,000 in the last completed fiscal year.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Summary Compensation Table for the Fiscal
Years Ended June 30, 2012 and 2011</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 44%; border-bottom: black 1pt solid; font-weight: bold">Name and Principal Position (a)</TD>
    <TD STYLE="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Year <BR>
June 30, (b)</TD>
    <TD STYLE="width: 6%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Salary<BR> ($) (c)</TD>
    <TD STYLE="width: 5%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Bonus<BR> ($) (d)</TD>
    <TD STYLE="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Stock<BR>
 Awards<BR> ($) (e)</TD>
    <TD STYLE="width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option <BR>
Awards<BR> ($) (f) (1)</TD>
    <TD STYLE="width: 11%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">All other<BR> compensation<BR> ($) (i)</TD>
    <TD STYLE="width: 6%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total<BR> ($) (j)</TD></TR>
<TR STYLE="vertical-align: top; background-color: #EEEEEE">
    <TD STYLE="padding-left: 5pt; text-indent: -5pt">Joseph N. Forkey (2)</TD>
    <TD STYLE="text-align: center">2012</TD>
    <TD STYLE="text-align: center">120,000</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">(3)</TD>
    <TD STYLE="text-align: center">180,000</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">300,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: white">
    <TD>Chairman of the Board of Directors, Chief Executive Officer, President and Treasurer</TD>
    <TD STYLE="text-align: center">2011</TD>
    <TD STYLE="text-align: center">120,000</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">(3)</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">120,000</TD></TR>
<TR STYLE="vertical-align: top; background-color: #EEEEEE">
    <TD STYLE="padding-left: 5pt; text-indent: -5pt">Richard G. Cyr</TD>
    <TD STYLE="text-align: center">2012</TD>
    <TD STYLE="text-align: center">112,300</TD>
    <TD STYLE="text-align: center">1,000</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">10,800</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">124,100</TD></TR>
<TR STYLE="vertical-align: top; background-color: white">
    <TD STYLE="padding-left: 5pt; text-indent: -5pt">Optical Shop Manager</TD>
    <TD STYLE="text-align: center">2011</TD>
    <TD STYLE="text-align: center">114,018</TD>
    <TD STYLE="text-align: center">500</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">0</TD>
    <TD STYLE="text-align: center">114,518</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</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: 5%; padding-left: 10pt; text-indent: -10pt">(1)</TD>
    <TD STYLE="width: 95%; text-align: justify">Represents the aggregate grant date fair value of stock option awards granted in
    the respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation &mdash; Stock Compensation. The
    fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. A
    discussion of the assumptions used in calculating the amounts in this column may be found in Note 4(a) to our audited
    consolidated financial statements for the year ended June 30, 2012 set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 15, 2012 and amended on October 26, 2012 to furnish Exhibit 101 to the Form 10-K, which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes included thereto. These amounts do not
    represent the actual amounts paid to or realized by the Named Executive Officers during the fiscal year ended June 30, 2012
    or 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">(2)</TD>
    <TD STYLE="text-align: justify">Effective February 8, 2011, Dr. Joseph N. Forkey was appointed to serve as our Chief Executive Officer and Chairman of the Board of Directors. Dr. Forkey served as our Executive Vice President and Chief Scientific Officer from April 2006 to February 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">(3)</TD>
    <TD STYLE="text-align: justify">Based upon a compensation arrangement approved by the Board of Directors on April 15, 2008, Dr. Forkey agreed to defer a portion of his salary. On December 3, 2010, we executed a compensation agreement where we agreed to pay Dr. Forkey $29,999, representing all deferred salary due to Dr. Forkey as of the date of the agreement. On October 14, 2011, we amended the compensation agreement to extend the deadline by which we were required to issue the shares of common stock. In return for Dr. Forkey&rsquo;s consent to forgive the deferred salary owed to him by us, we issued him 10,909 shares of our restricted common stock in October 2011. The aggregate grant date fair value of the stock was reflected in the respective fiscal years it was earned by Dr. Forkey even though it was received by Dr. Forkey in FY 2012.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in"><B><I>Employment Contracts and Termination
of Employment Arrangements</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have no employment contracts, other than
the compensation agreement disclosed above, in place with any Named Executive Officer. We have no compensatory plan or arrangement
with respect to any Named Executive Officer where such plan or arrangement will result in payments to such Named Executive Officer
upon or following his resignation, or other termination of employment with us and our subsidiaries, or as a result of a change-in-control
of our Company or a change in the Named Executive Officers&rsquo; responsibilities following a change-in-control.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B><I>Repricing of Certain Director and Officer
Option Grants</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On February 9, 2012, our Board of Directors
granted options to purchase common stock to our directors and officers. Following our Company&rsquo;s longstanding policy and consistent
with the terms of our qualified stock option plans, the options were granted with an exercise price set at the price of our common
stock at the close of business on the grant date.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">After the Board approved these grants, but
before the market closed on February 9, 2012, a trade occurred in our common stock resulting in a closing stock price of $0.55,
which was significantly lower than recent historical and subsequent market prices, and lower than originally anticipated by the
Board of Directors in regards to the stock option grants.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In order to recover the original intent of
the Board of Directors, each of our directors and officers to whom options were granted on February 9, 2012 agreed to cancel the
options granted on that day and to accept an equal number of replacement options granted on March 2, 2012, with an exercise price
of $1.20, which was the closing stock price on the replacement grant date.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">As a result, on March 2, 2012, the Board granted
the following options:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">7,600 options to Richard Miles, for his
service on our Board of Directors;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">7,600 options to Joel Pitlor, for his service on our Board of Directors;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">27,600 options to Donald A. Major, consisting of 20,000 options as
compensation for services provided to us, and 7,600 options for his prior service on our Board of Directors;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">150,000 options to Dr. Joseph N. Forkey, as compensation for services
provided to us; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">15,000 options to Jack P. Dreimiller, as compensation for services
provided to us.</FONT></TD></TR></TABLE>



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


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Outstanding Equity Awards at Fiscal Year-End
Table for the Fiscal Year Ended June 30, 2012</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table shows grants of options
outstanding on June 30, 2012, the last day of our fiscal year, to each of the Named Executive Officers named in the Summary Compensation
Table.</P>

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

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="14" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option Awards</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold">Name (a)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Number of securities<BR> underlying unexercised<BR> options exercisable<BR> (#) (b)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Number of securities<BR> underlying unexercised<BR> options unexercisable<BR> (#) (c)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option<BR> exercise<BR> price ($) (e)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Option<BR> expiration<BR> date (f)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 19%; padding-left: 10pt; text-indent: -10pt">Joseph N. Forkey</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 17%; text-align: right">600</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right">0&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right">13.75</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: right">05/09/2016</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">06/13/2015</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">22,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">20.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">06/13/2015</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">150,000 (1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">03/02/2022</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Richard G. Cyr</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">10,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">05/09/2016</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">13,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">26,667&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">07/14/2021</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(1)</TD>
    <TD STYLE="width: 95%">Options with an expiration date of March 2, 2022 begin to vest 25,000 shares per quarter beginning January 1, 2013.</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B><I>Profit Sharing and 401(k) Plan</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have a defined contribution 401(k) profit
sharing plan. Employer profit sharing and matching contributions to the plan are discretionary. No employer profit sharing contributions
were made to the plan in fiscal years 2012 and 2011. No employer matching contributions were made to the plan in fiscal years 2012
and 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Director Compensation</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following table sets forth cash amounts
and the value of other compensation paid to our directors, but does include the compensation of Dr. Joseph N. Forkey, our Chairman
of the Board of Directors, Chief Executive Officer, President and Treasurer, as his compensation is reflected in the Summary Compensation
Table.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Director Compensation Table for the Fiscal
Year Ended June 30, 2012</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold">Name of Director (a)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Fees earned or<BR> paid in
    cash<BR> ($) (b) (1) </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Stock awards<BR> ($) (c) </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Option awards<BR> ($) (d)
    (2) </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> All other<BR> compensation<BR>
    ($) (g) </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"> Total<BR> ($) (h) </TD>
    <TD STYLE="padding-bottom: 1pt"> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 20%; padding-left: 5.4pt"> Richard E. Forkey (3) </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 12%; text-align: right"> (1 </TD>
    <TD STYLE="width: 1%"> ) </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 12%; text-align: right"> (4 </TD>
    <TD STYLE="width: 1%"> ) </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 12%; text-align: right"> 0 </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 12%; text-align: right"> 55,597 (5 </TD>
    <TD STYLE="width: 1%"> ) </TD>
    <TD STYLE="width: 2%"> &nbsp; </TD>
    <TD STYLE="width: 1%"> &nbsp; </TD>
    <TD STYLE="width: 12%; text-align: right"> 55,597 (5 </TD>
    <TD STYLE="width: 1%"> ) </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 5.4pt"> Donald A. Major (6) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 5,750 (7 </TD>
    <TD> ) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 5,000 (8 </TD>
    <TD> ) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 33,120 (9 </TD>
    <TD> ) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 42,283 (10 </TD>
    <TD> ) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 86,153 </TD>
    <TD> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="padding-left: 5.4pt"> Richard B. Miles (11) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 1,750 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 0 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 9,120 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 0 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 10,870 </TD>
    <TD> &nbsp; </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="padding-left: 5.4pt"> Joel R. Pitlor (12) </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 1,000 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 0 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 9,120 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 0 </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD> &nbsp; </TD>
    <TD STYLE="text-align: right"> 10,120 </TD>
    <TD> &nbsp; </TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: -10pt"></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: -10pt">(1)</P></TD>
    <TD STYLE="width: 95%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Under our director compensation plan, each director receives $250
        per board or committee meeting that the director attends. We also reimburse our directors for travel expenses. As Dr. Joseph N.
        Forkey and Mr. Richard E. Forkey are employees, the Board determined that Dr. Forkey and Mr. Forkey would not earn any fees related
        to service on our Board of Directors.</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt; text-indent: -10pt">(2)</TD>
    <TD STYLE="width: 95%; text-align: justify">Represents the aggregate grant date fair value of stock option awards granted in
    the respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation &mdash; Stock Compensation. The
    fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. A
    discussion of the assumptions used in calculating the amounts in this column may be found in Note 4(a) to our audited
    consolidated financial statements for the year ended June 30, 2012 set forth in our  Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 15, 2012 and amended on October 26, 2012 to furnish Exhibit 101 to the Form 10-K, which contains the XBRL (eXtensible Business Reporting Language) Interactive Data File for the financial statements and notes included thereto. These
    amounts do not represent the actual amounts paid to or realized by the directors during the fiscal year ended June 30,
    2012.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt; text-align: justify; text-indent: -10pt">(3)</TD>
    <TD STYLE="width: 95%; text-align: justify">Mr. Richard E. Forkey holds the executive position of Advisor to the Chief Executive Officer, in addition to his continued service as a member of our Board of Directors. Mr. Forkey served as our Chief Executive Officer until February 8, 2011.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt; text-align: justify; text-indent: -10pt"> (4) </TD>
    <TD STYLE="width: 95%; text-align: justify">Based upon a compensation arrangement approved by the Board of Directors on April 15, 2008, Mr. Forkey agreed to defer a portion of his salary. On December 3, 2010, we executed a compensation agreement where we agreed to pay Mr. Forkey $474,646, representing all deferred salary due to Mr. Forkey as of the date of the agreement. On October 14, 2011, we amended the compensation agreement to extend the deadline by which we were required to issue the shares of common stock. In return for Mr. Forkey&rsquo;s consent to forgive the deferred salary owed to him by us, we issued him 172,599 shares of our restricted common stock. The aggregate grant date fair value of the stock was reflected in the respective fiscal years it was earned by Mr. Forkey, even though it was received by Mr. Forkey in FY 2012.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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    <!-- Field: /Page -->

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%"> (5) </TD>
    <TD STYLE="width: 95%">Mr. Forkey&rsquo;s FY 2012 compensation consisted of: a) $36,488, earned as salary compensation for his services in the executive
position of Advisor to the Chief Executive Officer, and b) $19,109, which represents the value of premiums for a life insurance
and disability insurance policy we paid on Mr. Forkey&rsquo;s behalf. On July 25, 2012, our Board of Directors approved an arrangement
with Mr. Forkey, whereby a payment of $40,000 will be made to Mr. Forkey in exchange for canceling Mr. Forkey&rsquo;s life insurance
policy, on which we had been paying the policy premiums. Such payment will be reflected in Mr. Forkey&rsquo;s FY 2013 compensation.</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 9pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; text-align: center; margin-bottom: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif"><TR STYLE="vertical-align: top">
<TD STYLE="width: 5%"> (6) </TD><TD STYLE="width: 95%"> Mr. Donald A. Major was appointed to serve as our Executive Vice President
                              for Corporate Development on February 9, 2012, in addition to his continued service as a member
                              of our Board of Directors. </TD></TR></TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; text-align: center; margin-bottom: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 9pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(7)</TD>
    <TD STYLE="width: 95%">Mr. Major received the standard compensation set forth under our director compensation plan paid to directors of our Board of
Directors for their services, and also received additional compensation of $500 per month for his services as Chair of the Audit
Committee. Therefore, in total, Mr. Major received $5,750 for his services as a director and in his capacity as Chair of the Audit
Committee.</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 9pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(8)</TD>
    <TD STYLE="width: 95%">Mr. Major received $5,000 in restricted stock as compensation for consulting services provided to us prior to his appointment
as an executive officer of our Company in February 2012.</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 9pt">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(9)</TD>
    <TD STYLE="width: 95%">On March 2, 2012, we granted Mr. Major an aggregate of 27,600 options, consisting of options to purchase 7,600 shares of our common
stock with an exercise price of $1.20 as prior compensation for service on our Board and options to purchase 20,000 shares of
our common stock with an exercise price of $1.20 as compensation for services provided to us.</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 9pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt; text-align: justify; text-indent: -10pt">(10)</TD>
    <TD STYLE="width: 95%; text-align: justify">Mr. Major&rsquo;s FY 2012 compensation also consisted of: a) $26,606, earned as compensation for consulting services provided to us prior to his appointment as an executive officer of our Company in February 2012, and b) $15,677, earned as salary compensation for his role as Executive Vice President for Corporate Development of our Company beginning in February 2012.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%; padding-left: 10pt; text-align: justify; text-indent: -10pt">(11)</TD>
    <TD STYLE="width: 95%; text-align: justify">For the fiscal year ended June 30, 2012, Mr. Miles earned $1,750 for his services as a director. On March 2, 2012, we granted Mr. Miles options to purchase 7,600 shares of our common stock with an exercise price of $1.20 as prior compensation for service on our Board.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-align: justify; text-indent: -10pt">(12)</TD>
    <TD STYLE="text-align: justify">For the fiscal year ended June 30, 2012, Mr. Pitlor earned $1,000 for his services as a director. On March 2, 2012, we granted Mr. Pitlor options to purchase 7,600 shares of our common stock with an exercise price of $1.20 as prior compensation for service on our Board.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Security Ownership of Certain Beneficial
Owners and Management</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The following tables set forth information
regarding our common stock owned as of the close of business on October 4, 2012 by the following persons: (i) each person who is
known by us to own beneficially more than 5% of our common stock, (ii) each of our directors who beneficially owns our common stock,
(iii) each of our Named Executive Officers who beneficially own our common stock and (iv) all executive officers and directors,
as a group, who beneficially own our common stock. The information on beneficial ownership in the table and footnotes thereto is
based upon data furnished to us by, or on behalf of, the persons listed in the table.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have determined beneficial ownership in
accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished
to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares
of common stock that they beneficially own, subject to applicable community property laws.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">In computing the number of shares of common
stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock
subject to options held by that person that are currently exercisable or exercisable within 60 days after October 4, 2012. We did
not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Stockholders Known by Us to Own Over 5% of Our Common Stock</B></P>

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

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Amount of beneficial ownership (1)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Percent of</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-weight: bold">Name and Address of Beneficial Owner</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares Owned</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares &ndash;<BR> Rights to<BR> Acquire</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total<BR> Number</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares Beneficially<BR> Owned (2)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD STYLE="width: 36%">Austin W. Marxe (3) <BR> c/o Special Situations Funds <BR> 527 Madison Avenue, Suite 2600 <BR> New York, NY 10022</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">931,113</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">858,661</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">1,789,774</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">36.6%</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><BR>David M. Greenhouse (4) <BR> c/o Special Situations Funds <BR> 527 Madison Avenue, Suite 2600 <BR> New York, NY 10022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">931,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">858,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,789,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">36.6%</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD><BR>Arnold Schumsky (5) <BR> 145 East 27th Street <BR> New York, New York 10016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">120,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">89,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">210,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5.1%</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">MHW Partners, L.P. (6)</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">150 East 52<SUP>nd</SUP> St.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">New York, New York 10022</P></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">222,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">155,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">377,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">9.0%</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #EEEEEE">
    <TD><BR>DAFNA Capital Management LLC (7) <BR> 10990 Wilshire Blvd. <BR> Los Angeles, CA 90024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">388,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">272,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">661,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">15.4%</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><BR>Alpha Capital Anstalt (8) <BR> 150 Central Park South <BR> New York, New York 10019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">277,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">194,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">472,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">11.2%</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</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: 5%">(1)</TD>
    <TD STYLE="width: 95%; text-align: justify"> Represents shares with respect to which each beneficial owner listed has or
    will have, upon acquisition of such shares upon exercise or conversion of options, warrants, conversion privileges or other
    rights exercisable within sixty days, sole voting and investment power. Amounts listed have been adjusted, if necessary, to
    reflect a 1-for-25 reverse split, effective December 11, 2008. For the purposes of this table, we have not assumed the limitations
    on exercise set forth in certain warrants, which limit the number of shares of common stock that the holder, together with
    all other shares of common stock beneficially owned by such person, does not exceed 4.999% of the total outstanding shares
    of common stock. </TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(2)</TD>
    <TD STYLE="text-align: justify">As of October 4, 2012, there were 4,029,134 shares of our common stock issued and outstanding. Percentages are calculated on the basis of the amount of issued and outstanding common stock plus, for each person or group, any securities that such person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(3)</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We relied, in part, on a Schedule 13D/A jointly
        filed with the SEC on October 9, 2012 by Austin W. Marxe and David M. Greenhouse for this information.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Messrs. Marxe and Greenhouse are the controlling
        principals of AWM Investment Company, Inc., the general partner of and investment adviser to Special Situations Cayman Fund, L.P.
        AWM Investment Company also serves as the general partner of MGP Advisers Limited Partnership, the general partner of Special Situations
        Fund III QP, L.P. Messrs. Marxe and Greenhouse are also members of MG Advisers L.L.C., the general partner of Special Situations
        Private Equity Fund, L.P. AWM Investment Company serves as the investment adviser to Special Situations Fund III QP and Special
        Situations Private Equity Fund.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Special Situations Cayman Fund owns 1 share
        of common stock. Special Situations Fund III QP owns 771,112 shares of common stock, 3,630,000 warrants to purchase 572,979 shares
        of common stock plus warrants to purchase an additional 70,139 shares of common stock as a result of an anti-dilution feature in
        the warrants. Special Situations Private Equity Fund owns 160,000 shares of common stock, 3,630,000 warrants to purchase 145,200
        shares of common stock plus warrants to purchase an additional 70,139 shares of common stock as a result of an anti-dilution feature
        in the warrants. Messrs. Marxe and Greenhouse share the power to vote and direct the disposition of all shares of common stock
        owned by Special Situations Cayman Fund, Special Situations Fund III QP, and Special Situations Private Equity Fund.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Messrs. Marxe and Greenhouse are deemed to
        beneficially own a total of 931,113 shares of common stock, 7,260,000 warrants to purchase 718,179 shares of common stock plus
        warrants to purchase an additional 140,278 shares of common stock as a result of an anti-dilution feature in the warrants. However,
        the aggregate number of shares of common stock into which 427,779 warrants of the total warrants held by Special Situations Fund
        III QP are exercisable, and which Messrs. Marxe and Greenhouse have the right to acquire beneficial ownership, is limited to the
        number of shares of common stock that, together with all other shares of common stock beneficially owned by Messrs. Marxe and Greenhouse,
        does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, 427,779 warrants are not currently exercisable
        into common stock until the actual shares of common stock held by Messrs. Marxe and Greenhouse is less than 4.999% of the total
        outstanding shares of common stock. Special Situations Fund III QP may waive this 4.999% restriction with 61 days notice to us.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"></P></TD></TR>
</TABLE>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt"></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: 5%">&nbsp;</TD>
    <TD STYLE="width: 95%">Mr. Marxe additionally holds an additional
        204 shares of common stock that may be acquired by Mr. Marxe as an individual upon the exercise of outstanding stock options.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(4)</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We relied, in part, on a Schedule 13D/A jointly
        filed with the SEC on October 9, 2012 by Austin W. Marxe and David M. Greenhouse for this information.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Messrs. Marxe and Greenhouse are the controlling
        principals of AWM Investment Company, Inc., the general partner of and investment adviser to Special Situations Cayman Fund, L.P.
        AWM Investment Company also serves as the general partner of MGP Advisers Limited Partnership, the general partner of Special Situations
        Fund III QP, L.P. Messrs. Marxe and Greenhouse are also members of MG Advisers L.L.C., the general partner of Special Situations
        Private Equity Fund, L.P. AWM Investment Company serves as the investment adviser to Special Situations Fund III QP and Special
        Situations Private Equity Fund.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Special Situations Cayman Fund owns 1 share
        of common stock. Special Situations Fund III QP owns 771,112 shares of common stock, 3,630,000 warrants to purchase 572,979 shares
        of common stock plus warrants to purchase an additional 70,139 shares of common stock as a result of an anti-dilution feature in
        the warrants. Special Situations Private Equity Fund owns 160,000 shares of common stock, 3,630,000 warrants to purchase 145,200
        shares of common stock plus warrants to purchase an additional 70,139 shares of common stock as a result of an anti-dilution feature
        in the warrants. Messrs. Marxe and Greenhouse share the power to vote and direct the disposition of all shares of common stock
        owned by Special Situations Cayman Fund, Special Situations Fund III QP, and Special Situations Private Equity Fund.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Messrs. Marxe and Greenhouse are deemed to
        beneficially own a total of 931,113 shares of common stock, 7,260,000 warrants to purchase 718,179 shares of common stock plus
        warrants to purchase an additional 140,278 shares of common stock as a result of an anti-dilution feature in the warrants. However,
        the aggregate number of shares of common stock into which 427,779 warrants of the total warrants held by Special Situations Fund
        III QP are exercisable, and which Messrs. Marxe and Greenhouse have the right to acquire beneficial ownership, is limited to the
        number of shares of common stock that, together with all other shares of common stock beneficially owned by Messrs. Marxe and Greenhouse,
        does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, 427,779 warrants are not currently exercisable
        into common stock until the actual shares of common stock held by Messrs. Marxe and Greenhouse is less than 4.999% of the total
        outstanding shares of common stock. Special Situations Fund III QP may waive this 4.999% restriction with 61 days' notice to us.</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 6pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 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: 5%">(5)</TD>
    <TD STYLE="width: 95%; text-align: justify">We relied, in part, on a Schedule 13D filed with the SEC on June 6, 2007 by Arnold Schumsky for this information. Mr. Schumsky beneficially owns a total of 210,316 shares of common stock. His ownership consists of (i) 120,430 shares of common stock owned of record by Mr. Schumsky, and (ii) 89,886 shares that may be acquired upon the exercise of outstanding warrants which are immediately exercisable. However, the aggregate number of shares of common stock into which 58,334 warrants of the total warrants held by Mr. Schumsky are exercisable, and which Mr. Schumsky has the right to acquire beneficial ownership, is limited to the number of shares of common stock that, together with all other shares of common stock beneficially owned by Mr. Schumsky, does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, 58,334 warrants are not currently exercisable into common stock until the actual shares of common stock held by Mr. Schumsky is less than 4.999% of the total outstanding shares of common stock. Mr. Schumsky may waive this 4.999% restriction with 61 days notice to us.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(6)</TD>
    <TD STYLE="text-align: justify">MHW Partners, L.P. beneficially owns 222,223 shares of common stock, and 155,557 shares that may be acquired upon the exercise of outstanding warrants. However, the aggregate number of shares of common stock into which such warrants are exercisable, and which MHW Partners, L.P. has the right to acquire beneficial ownership, is limited to the number of shares of common stock that, together with all other shares of common stock beneficially owned by MHW Partners, L.P., does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, such warrants are not currently exercisable into common stock until the actual shares of common stock held by MHW Partners, L.P. is less than 4.999% of the total outstanding shares of common stock. MHW Partners, L.P. may waive this 4.999% restriction with 61 days notice to us. Peter Woodward is the managing member and general partner of MHW Partners, L.P. and in such capacity, Mr. Woodward holds the power to vote and direct the disposition of all shares of common stock owned by MHW Partners, L.P.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(7)</TD>
    <TD STYLE="text-align: justify">DAFNA Capital Management beneficially owns 388,889 shares of common stock, in the aggregate.
    DAFNA Capital Management holds common stock purchase warrants exercisable into 272,223 shares of common stock, in the
    aggregate. DAFNA LifeScience Market Neutral, Ltd. owns 77,778 shares of common stock and 54,445 shares that be acquired upon
    the exercise of outstanding warrants. DAFNA LifeScience Select, Ltd. owns 200,000 shares of common stock and 140,000 shares
    that be acquired upon the exercise of outstanding warrants. DAFNA LifeScience, Ltd. owns 111,111 shares of common stock and
    77,778 shares that be acquired upon the exercise of outstanding warrants. However, the aggregate number of shares of common
    stock into which such warrants are exercisable, and which DAFNA Capital Management has the right to acquire beneficial
    ownership, is limited to the number of shares of common stock that, together with all other shares of common stock
    beneficially owned by DAFNA Capital Management, does not exceed 4.999% of the total outstanding shares of common stock.
    Accordingly, such warrants are not currently exercisable into common stock until the actual shares of common stock held by
    DAFNA Capital Management is less than 4.999% of the total outstanding shares of common stock. DAFNA LifeScience Market
    Neutral,  DAFNA LifeScience Select, and DAFNA LifeScience may waive this 4.999% restriction with 61 days notice to us.
    Nathan Fischel, in his capacity as managing member of DAFNA Capital Management, may be deemed to beneficially own the
    securities owned by DAFNA LifeScience Market Neutral, DAFNA LifeScience Select, and DAFNA LifeScience.</TD></TR>
</TABLE>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt">&nbsp;</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: 5%">&nbsp;</TD>
    <TD STYLE="width: 95%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>(8)</TD>
    <TD STYLE="text-align: justify">Alpha Capital Anstalt beneficially owns 277,778 shares of common stock and 194,445 shares that may be acquired upon the exercise of outstanding warrants. However, the aggregate number of shares of common stock into which such warrants are exercisable, and which Alpha Capital Anstalt has the right to acquire beneficial ownership, is limited to the number of shares of common stock that, together with all other shares of common stock beneficially owned by Alpha Capital Anstalt, does not exceed 4.999% of the total outstanding shares of common stock. Accordingly, such warrants are not currently exercisable into common stock until the actual shares of common stock held by Alpha Capital Anstalt is less than 4.999% of the total outstanding shares of common stock. Alpha Capital Anstalt may waive this 4.999% restriction with 61 days notice to us.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Officers and Directors </B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="5" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center">Amount of beneficial ownership (2)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Percent of</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 32%; border-bottom: black 1pt solid; font-weight: bold">Name and address of beneficial owner (1)</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 20%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Nature of beneficial<BR> ownership</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 7%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares<BR> Owned</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 11%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares &ndash; Rights<BR> to Acquire</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 10%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Total Number</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 9%; border-bottom: black 1pt solid; font-weight: bold; text-align: center">Shares<BR> Beneficially<BR>
    Owned (3)</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Joseph N. Forkey (4)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Chairman of the Board of Directors, Chief Executive Officer, President and Treasurer</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">33,620</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">49,781</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">83,401</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">2.0%</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Jack P. Dreimiller (5)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Senior Vice President and Chief Financial Officer</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">583</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">5,000</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">5,583</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Donald A. Major (6)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Executive Vice President for Corporate Development and Director</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">35,778</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">44,445</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">80,223</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">2.0%</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Richard E. Forkey (7)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Advisor to the Chief Executive Officer and Director</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">212,993</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">49,333</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">262,326</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">6.4%</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Richard B. Miles (8)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Director</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">15,112</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">17,379</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">32,491</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Joel R. Pitlor (9)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Director</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">195,395</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">9,978</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">205,373</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">5.1%</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: #EEEEEE">
    <TD STYLE="vertical-align: top; padding-left: 10pt; text-indent: -10pt">Richard Cyr (10)</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Optical Shop Manager</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">0</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">23,533</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">23,533</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD></TR>
<TR STYLE="background-color: white">
    <TD STYLE="vertical-align: top">All directors and executive officers as a group (7 persons)</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">493,481</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">199,449</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">692,930</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">16.4%</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt">_________________</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 10pt">* Percentage of shares beneficially owned does not exceed
one percent of issued and outstanding shares of stock.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(1)</TD>
    <TD STYLE="width: 95%">Unless otherwise stated, the address of each beneficial owners listed on the table is c/o Precision Optics Corporation, Inc.,
22 East Broadway, Gardner, MA 01440.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(2)</TD>
    <TD STYLE="width: 95%"> Represents shares with respect to which each beneficial owner listed has or will have, upon acquisition
    of such shares upon exercise or conversion of options, warrants, conversion privileges or other rights exercisable within
    sixty days, sole voting and investment power. Amounts listed have been adjusted, if necessary, to reflect a 1-for-25 reverse
    split, effective December 11, 2008. </TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(3)</TD>
    <TD STYLE="width: 95%">As of October 4, 2012, we had 4,029,134 shares of our common stock issued and outstanding. Percentages are calculated on the basis
of the amount of issued and outstanding common stock plus, for each person or group, any securities that such person or group
has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(4)</TD>
    <TD STYLE="width: 95%">Dr. Forkey is Chairman of our Board of Directors and serves as our Chief Executive Officer, President and Treasurer. Dr. Forkey
beneficially owns 49,781 shares of common stock which may be acquired within 60 days of October 4, 2012 upon the exercise of outstanding
stock options and warrants. Dr. Forkey also beneficially owns 33,620 shares of common stock through joint ownership with his wife,
Heather C. Forkey, with whom he shares voting and dispositive control.</TD></TR>
</TABLE>



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

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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(5)</TD>
    <TD STYLE="width: 95%">Mr. Dreimiller is our Senior Vice President and Chief Financial Officer. Mr. Dreimiller beneficially owns 583 shares of common
stock and 5,000 shares of common stock which may be acquired within 60 days of October 4, 2012 upon the exercise of outstanding
stock options.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(6)</TD>
    <TD STYLE="width: 95%">Mr. Major is our Executive Vice President for Corporate Development and a member of our Board of Directors. Mr. Major beneficially
owns 35,778 shares of common stock and 44,445 shares of common stock which may be acquired within 60 days of October 4, 2012 upon
the exercise of outstanding stock options and warrants.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(7)</TD>
    <TD STYLE="width: 95%">Mr. Forkey holds the executive position of Advisor to the Chief Executive Officer and is a member of our Board of Directors. He
also served as our Chief Executive Officer until February 8, 2011. Mr. Forkey beneficially owns 212,993 shares of common stock
and 49,333 shares of common stock which may be acquired within 60 days of October 4, 2012 upon the exercise of outstanding stock
options and warrants.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(8)</TD>
    <TD STYLE="width: 95%">Mr. Miles is a member of our Board of Directors. Mr. Miles beneficially owns 15,112 shares of common stock and 17,379 shares of
common stock which may be acquired within 60 days of October 4, 2012 upon the exercise of outstanding stock options.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(9)</TD>
    <TD STYLE="width: 95%">Mr. Pitlor is a member of our Board of Directors. Mr. Pitlor beneficially owns 195,395 shares of common stock, and 9,978 shares
which may be acquired within 60 days of October 4, 2012 upon the exercise of outstanding stock options.</TD></TR>
</TABLE>



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

<TABLE CELLPADDING="0" CELLSPACING="0" BORDER="0" STYLE="width: 100%; margin-top: 0pt; margin-bottom: 0pt; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 5%">(10)</TD>
    <TD STYLE="width: 95%">Mr. Cyr is our Optical Shop Manager and is considered a &ldquo;named executive officer&rdquo; as defined in Item 402(a)(3) of
Regulation S-K for the purposes of this filing. Mr. Cyr beneficially owns 23,533 shares of common stock which may be acquired
within 60 days of October 4, 2012 upon the exercise of outstanding stock options.</TD></TR>
</TABLE>



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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"> We lease our main facility in Gardner,
Massachusetts from Equity Assets, Inc., a company wholly-owned by Mr. Richard E. Forkey, our current director and former President,
Chief Executive Officer, and Treasurer. We are currently a tenant-at-will, paying rent of $9,000 per month, or an aggregate of
$108,000 per year, for each of fiscal years 2012 and 2011. </P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On July 13, 2011, Dr. Joseph N. Forkey, our
Chief Executive Officer, loaned us $10,000 for working capital and payroll expenses. The loan was non-interest bearing, payable
on demand, and repaid in full on August 2, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">On September 28, 2012, we closed on agreements
with investors for the sale and purchase of units consisting of an aggregate of (i) 2,777,795 shares of our common stock, and (ii)
warrants to purchase an aggregate of 1,944,475 shares of common stock, at a per unit price of $0.90. Each unit consisted of one
share of common stock and 70% warrant coverage. The warrants have an exercise price of $1.25 per share, subject to adjustment and
a call provision if certain market price targets are reached, will expire five years from September 28, 2012, and are exercisable
in whole or in part, at any time prior to expiration. We received $2.5 million in gross proceeds from the offering.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Certain of our directors and officers participated
in the offering on the same terms as the other investors and purchased a total aggregate amount of approximately $80,000 of units
in the offering, in such amounts as follows:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR>
    <TD ROWSPAN="2" STYLE="border: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Name of Purchaser</TD>
    <TD ROWSPAN="2" STYLE="border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Company Affiliation</TD>
    <TD COLSPAN="2" STYLE="border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Securities Purchased in Offering</TD>
    <TD ROWSPAN="2" STYLE="border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Unit Price</TD>
    <TD ROWSPAN="2" STYLE="border-top: windowtext 1pt solid; border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Subscription Amount</TD></TR>
<TR>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Shares of Common Stock</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Warrants</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Forkey, Richard E.</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Director</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">27,778</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">19,445</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$0.90</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$25,000.20</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Joseph N. Forkey and Heather C. Forkey JTTEN</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Chairman of the Board, Chief Executive Officer, President, and Treasurer</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">22,223</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">15,557</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$0.90</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$20,000.70</TD></TR>
<TR STYLE="background-color: rgb(238,238,238)">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Major, Donald A.</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Executive Vice President for Corporate Development and Director</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">27,778</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">19,445</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$0.90</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$25,000.20</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="border-right: windowtext 1pt solid; border-bottom: windowtext 1pt solid; border-left: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Miles, Richard</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">Director</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">11,112</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">7,779</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$0.90</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; border-right: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">$10,000.80</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 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%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">During the fiscal year ended June 30, 2012,
the Board of Directors has made the determination that Mr. Richard B. Miles and Mr. Joel R. Pitlor are &ldquo;independent&rdquo;
as defined under the standards of independence set forth in the NASDAQ Listing Rules and the rules under the Securities Exchange
Act of 1934.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> Certain legal matters in connection
with the securities will be passed upon for us by the law firm of Trombly Business Law, P.C., Newton, Massachusetts. Ms. Trombly,
the principal of Trombly Business Law, P.C., will not receive a direct or indirect interest in our Company and has never been
a promoter, underwriter, voting trustee, director, officer, or employee of our Company. Nor does Ms. Trombly have any contingent
based agreement with us or any other interest in or connection to us. </P>



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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">The June 30, 2012 and 2011 financial statements
included in this prospectus have been audited by Stowe &amp; Degon LLC, independent auditors, and have been included in reliance
upon the report of such firm given upon their authority as experts in accounting and auditing. Stowe &amp; Degon LLC, has no direct
or indirect interest in us, nor were they a promoter or underwriter.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">We have been advised that, in the opinion of
the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act 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 is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered,
we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of
whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court&rsquo;s
decision.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is therefore unenforceable.</P>

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

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    <!-- Field: /Page -->

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0; text-align: left"></P>

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