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<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>1.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>Nature
of Operations</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">Atomera
Incorporated (“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under
the name MEARS Technologies, Inc. and is engaged in the development, commercialization and licensing of proprietary processes
and technologies for the semiconductor industry. On January 12, 2016, the Company changed its name to Atomera Incorporated.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company is in the development stage, having not yet started planned principal operations, and is devoting substantially all of
its efforts toward technology research and development. The Company has primarily financed operations through private placements
of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which was consummated on
August 10, 2016 (see Note 10).</font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>4.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>BASIC AND DILUTED
LOSS PER SHARE</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">Basic
net loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period.
Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents
outstanding for the period, determined using the treasury-stock and if-converted methods. Since the Company has had net losses
for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per
share are equal. </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
following potential common stock equivalents were not included in the calculation of diluted net loss per common share because
the inclusion thereof would be anti-dilutive (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 85%; margin-left: 0.5in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>June
30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 72%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Stock
Options</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">538</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">388</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">301</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">905</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Conversion
of Notes Payable</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">6,203</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">4,180</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">7,042</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">5,473</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>5.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>NOTES PAYABLE</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">From
January 9, 2015 through February 5, 2015, the Company issued promissory notes to certain investors in the aggregate principal
amount of approximately $1.1 million.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
March 17, 2015, the Company issued Senior Secured Convertible Notes (the “Secured Notes”) to certain investors under
which the Company borrowed approximately $7.4 million. National Securities Corporation (“NSC”) acted as placement
agent and the Company paid brokerage commissions to NSC of approximately $785,700 and issued to NSC a warrant to purchase ten
percent of the common shares issuable upon conversion of Secured Notes in the principal amount of $7,372,557 at an exercise price
equal to the conversion price of the Secured Notes. The brokerage commissions are being amortized as interest expense over the
life of the loan. During the three and six months ended June 30, 2016, the Company recognized interest expense of approximately
$131,000 and $325,000 related to the brokerage commissions which is included in interest expenses in the condensed statements
of operations. The Company also issued a warrant to NSC in connection with this financing.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
addition, on March 17, 2015, the Company exchanged all of its existing unsecured convertible promissory notes for Secured Notes
with an aggregate principal balance of approximately $7.3 million. The total closing represented $14.75 million. The Secured Notes
were due on May 31, 2016 and accrue interest at a rate of 10% per annum, except in any event of default in which case the interest
rate shall be 12% per annum. During March 2016, the maturity date of the Secured Notes was extended to May 31, 2017. All other
terms of the Secured Notes remained the same. The Secured Notes automatically convert to common stock in the event of an IPO of
the Company and are optionally convertible upon a subsequent placement of equity other than an IPO or at the discretion of the
note holder. Based on the method of conversion, the Secured Notes are converted into common stock at the Conversion Price, as
defined in the agreement.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
April 2016, the Company issued additional Secured Notes in the aggregate principal amount of approximately $5,958,000. These notes
have the same terms as the previous Secured Notes and mature on May 31, 2017. NSC acted as placement agent and the Company paid
NSC a brokerage commission in the amount of ten percent of the proceeds from the Secured Notes placed by NSC, or approximately
$438,000, and issued to NSC a warrant to purchase ten percent of the common shares issuable upon conversion of Secured Notes in
the principal amount of approximately $4.4 million at an exercise price equal to the conversion price of the Secured Notes. In
June 2016, and prior to any exercise of the warrant, NSC elected to cancel the warrant in full and for no consideration.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
the three months and six months ended June 30, 2016, the interest expense on the Secured Notes was approximately $748,000 and
$1.3 million, respectively. During the three and six months ended June 30, 2015, the interest expense on the Secured Notes was
approximately $562,000 and $795,000, respectively. On August 10, 2016, in connection with the Company’s IPO, all Secured
Notes were converted into common stock (see Note 10).</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">At
June 30, 2016 and December 31, 2015, the Secured Notes payable consisted of the following (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
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<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: right; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>June
30, 2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: right; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>December,
31, 2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 72%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Senior
Notes</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">20,708</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">14,750</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Accrued
interest</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,551</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,670</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Debt
Discount</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(387</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(325</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Senior
secured convertible promissory notes payable, net</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">22,872</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">16,095</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>6.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>Related
Party Transactions</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
January 14, 2005, the Company executed a Secured Promissory Note (the “Promissory Note”) with an officer of the Company.
Under the Promissory Note, the officer borrowed $187,500 from the Company. The Promissory Note bore interest at a fixed rate of
3.76% per annum, with interest-only payments due annually through the maturity date of January 14, 2014. In December 2015, the
Company agreed to extend the term of the note to January 14, 2019, subject to acceleration in the event of the sale of the sale
or liquidation of the Company, bankruptcy or like event. Effective January 2016 the Company cancelled the outstanding principal
of the note in the amount of $187,500. The cancellation of this note was recognized as a bonus to the officer and included in
general and administrative expenses in the accompanying condensed statement of operations for the six month period ended June
30, 2016. As of the date of the cancellation of the Promissory Note, there was accrued and unpaid interest under the note in the
amount of approximately $7,000, which amount has been repaid by the officer. In return for the cancellation of the note, the officer
was required to reimburse the Company for withholding taxes payable by the Company, in the amount of approximately $14,000.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
the three and six month periods ended June 30, 2016, a director, who is also a shareholder of the Company, was paid $0 and $3,000,
respectively, for his work as a consultant for the Company. The director was also paid $2,000 and $4,000 for similar work during
the three and six months ended June 30, 2015, respectively.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">A
director and shareholder of the Company is a partner of a law firm that serves as legal counsel for the Company. During the three
months ended June 30, 2016 and 2015, this law firm billed the Company approximately $2,000 and $13,000, respectively. During the
six months ended June 30, 2016 and 2015, the Company was billed approximately $2,000 and $32,000, respectively. Included in accounts
payable on the accompanying condensed balance sheets at June 30, 2016 and December 31, 2015, is $0 and approximately $1,000, respectively
owed to this law firm. Pursuant to the Company’s agreement with this law firm, the firm will either reimburse the Company
or pay on its behalf out-of-pocket costs and expenses (continue with sentence as indicated) associated with a patent infringement
lawsuit brought by the Company (See Part II, Item 1 of this report), including any award for attorney’s fees and costs sought
by the defendant in that lawsuit.</font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>7.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>WARRANTS</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">A
summary of warrant activity for the six months ended June 30, 2016 is as follows (shares in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 80%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number
of<br /> Shares</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-<br />
Average<br /> Exercise<br /> Prices</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-Average<br />
Remaining<br /> Contractual<br /> Term (In Years)</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 58%; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at January 1, 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">303</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">3.41</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Issued</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(2</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">33.75</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">301</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">2.03</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">3.7</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
warrants outstanding at June 30, 2016 had an intrinsic value of approximately $1.2 million based on a per share stock price of
$5.70.</font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>9.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>commitments
and contingencies</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Incentive
Bonus</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
September 2015, the Board of Directors resolved to pay an incentive bonus to certain directors and officers contingent upon the
Company being listed on the NASDAQ stock exchange before May 31, 2016 (subsequently extended to May 31, 2017 by the Board of Directors
during February 2016) in connection with an initial public offering (IPO) with net proceeds of at least $15 million and a post-IPO
valuation of at least $50 million and that the directors and officers continue to be in service with the Company until the IPO
is closed. If these circumstances are met, a total bonus of approximately $1.7 million will be paid to employees in the form of
common stock, convertible at the greater of the IPO price to the public or $3.681 per share. These incentive agreements also provide
that an officer or director may continue to be eligible for the incentive bonus if their service with the Company terminates without
cause or the officer or director resigns with good reason.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Operating
Leases</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
November 5, 2014, the Company entered into a lease agreement for the use of 1,730 square feet of office space in Wellesley Hills,
Massachusetts. The lease with monthly payments of $4,613 commenced on December 1, 2014 and expires on November 30, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
January 19, 2016, the Company entered into a real estate lease agreement for a 3,396 square foot office facility in Los Gatos,
California as its new corporate headquarters. The lease commenced on February 1, 2016 and expires on January 31, 2018. The lease
rate is approximately $12,000 per month, which will increase to approximately $13,000 per month commencing February 1, 2017.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">Approximate
future minimum lease payments required under the operating leases are as follows (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 80%; margin-left: 0.5in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Years
ending December 31,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Amount</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 86%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">Remaining
period in 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">98</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">156</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">13</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">267</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Officer
Compensation</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
January 2016, the Company entered into employment agreements with three officers. The agreements call for an annual base salary
of $250,000 and a bonus of up to 30% of base salary for one officer and annual base salaries of $220,000 and a bonus of up to
15% of base salary for the other two officers. In the event of involuntary termination, each officer is entitled to six months
of severance pay. In June 2016, the Company terminated one of the officers effective as of June 30, 2016. The severance expense
related to this termination is included in general and administration expense of the condensed statements of operation for the
three and six months ended June 30, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
February 2016, the Company entered into an employment agreement with an officer. The agreement calls for an annual base salary
of $225,000 and a bonus of up to 30% of base salary. In the event of involuntary termination, the officer is entitled to six months
of severance pay<font style="font-weight: normal">.</font></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Basis
of presentation</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange
Commission (the “SEC”). Accordingly, since they are interim financial statements, the accompanying condensed financial
statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments
consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. In the opinion of the Company’s management, all adjustments,
consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s financial position
and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of
results for a full year. The condensed financial statements and notes should be read in conjunction with the financial statements
and notes for the year ended December 31, 2015 which are included in the Company’s final IPO prospectus filed with the SEC
Pursuant to Rule 424(b)(4) of the Securities Act of 1933 on August 8, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Deferred
offering costs</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company complies with the requirements of the ASC 340, <i>Other Assets and Deferred Costs</i>. Deferred offering costs of approximately
$234,000 consist principally of legal, accounting, and filing fees incurred through the balance sheet date that are related to
the proposed offering and that will be charged to capital upon the receipt of the capital raised or charged to expense if the
proposed offering is not completed. The offering was completed on August 10, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Stock-based
compensation</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company computes stock-based compensation in accordance with authoritative guidance. The Company uses the Black-Scholes-Merton
option-pricing model to determine the fair value of its stock options. The Black-Scholes-Merton option-pricing model includes
various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected
volatility and the expected risk-free interest rate, among others. These assumptions reflect the Company’s best estimates,
but they involve inherent uncertainties based on market conditions generally outside the control of the Company.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">As
a result, if other assumptions had been used, stock-based compensation cost, as determined in accordance with authoritative guidance,
could have been materially impacted. Furthermore, if the Company uses different assumptions on future grants, stock-based compensation
cost could be materially affected in future periods.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for the fair value of equity instruments issued to non-employees using either the fair value of the services
received or the fair value of the equity instrument, whichever is considered more reliable<i>. </i>The Company utilizes the Black-Scholes-Merton
option-pricing model to measure the fair value of options issued to non-employees.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Use
of estimates</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
preparation of condensed financial statements in conformity with GAAP requires the Company’s 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 expenses during the reporting period. Significant estimates
include the fair value of stock-based compensation and warrants, valuation allowance against deferred tax assets and related disclosures.
Actual results could differ from those estimates.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; text-align: left; margin-top: 0; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif"><i>Recent
accounting pronouncements</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02, <i>Leases</i> (“ASU 2016–02”) which replaces the existing guidance in Accounting Standards
Codification, (“ASC”) Topic 840, <i>Leases</i>. The new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement.   The guidance is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years and requires retrospective application. The Company has not yet adopted this
update and is currently evaluating the impact it may have an its financial condition and results of operation</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
March 2016, the FASB issued ASU No. 2016-09, <i>Compensation—Stock Compensation (Topic 718),</i> (“ASU 2016-09”).  ASU
2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based
compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement
of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting
periods beginning after December 15, 2016. The Company has not yet adopted this update and is currently evaluating the impact
it may have an its financial condition and results of operation</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
August 26, 2016, the FASB issued ASU No. 2016-15, <i>Classification of Certain Cash Receipts and Cash Payments (a consensus of
the Emerging Issues Task Force), </i>(“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow
issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a
statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in
ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years.  Early adoption is permitted, including adoption in an interim period. The Company has not yet
adopted this update and is currently evaluating the impact it may have an its financial condition and results of operation</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
following potential common stock equivalents were not included in the calculation of diluted net loss per common share because
the inclusion thereof would be anti-dilutive (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 85%; margin-left: 0.5in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>June
30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 72%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Stock
Options</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">538</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">388</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Warrants</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">301</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">905</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Conversion
of Notes Payable</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">6,203</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">4,180</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">7,042</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">5,473</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">Approximate
future minimum lease payments required under the operating leases are as follows (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 80%; margin-left: 0.5in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td style="border-bottom: black 1pt solid; text-align: left; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Years
ending December 31,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Amount</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 86%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">Remaining
period in 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">98</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">2017</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">156</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">2018</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">13</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Total</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">267</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
1617000
1617000
1233000
1233000
0.001
0.001
2500000
2500000
0.001
0.001
47500000
47500000
1617000
1617000
1617000
1617000
24700000
7042000
5473000
538000
301000
6203000
388000
905000
4180000
20708000
1100000
147500000
5958000
14750000
2551000
1670000
387000
325000
3.681
7.50
1730
3396
4613
12000
13000
2016-11-30
2018-01-31
250000
220000
220000
225000
0.30
0.15
0.15
0.30
ATMR
98000
156000
13000
267000
<table cellspacing="0" cellpadding="0" style="margin-top: 0px; font-size: 10pt; font-weight: bold; margin-bottom: 0px">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0px"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; width: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"><b>10.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>Subsequent
Events</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Initial
Public Offering</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
registration statement on Form S-1 for the Company’s IPO was declared effective by the SEC on August 4, 2016. On August 10,
2016, the Company consummated the IPO of 3,680,000 shares of common stock (which included 480,000 shares issued pursuant to the
underwriter’s overallotment option) at a price per share of $7.50 and received from the underwriter net proceeds of approximately
$24.7 million (net of underwriter’s discount of approximately $2.3 million and offering expenses of approximately $570,000).<i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><i>  </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Stock
Incentive Plan Amendment and Form S-8 Registration Statement</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
April 2016, the Board of Directors of the Company resolved that upon the completion of an IPO the 2007 Stock Incentive Plan shall
be amended to increase common shares issuable thereunder to 3,199,447 shares of common stock, representing 20% of the total issued
and outstanding shares of Common Stock on a fully-diluted basis immediately after the IPO. On August 12, 2016 the Company filed
a registration statement on Form S-8 (which became effective upon filing) for the registration of 3,199,447 shares of common stock
pursuant to the 2007 Equity Incentive Plan.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Incentive
Bonus</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
July 2016, the Company and certain officers and directors with whom the Company had agreed to grant certain incentive share bonuses
(Note 9) agreed to cancel the share bonuses in return for the Company’s agreement to grant each recipient, upon the close
of the Company’s initial public offering, shares of the Company’s restricted common stock pursuant to restricted stock
agreements. The restricted stock agreements provided that the Company will issue to the recipients an aggregate of 440,364 shares
of the Company’s common stock and that all shares remain subject to forfeiture, until the prescribed vesting date, in the
event the recipient fails to remain in service to the Company for any reason other than the Company’s termination without
cause or the recipient’s resignation for good reason. The restricted stock agreements provide that the award shall be fully
vested on the one year anniversary of the date of grant. Effective August 10, 2016, coincident with the closing of the IPO, the
Company issued the 440,364 shares pursuant to the restricted stock agreements.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Conversion
of Secured Notes</i></font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">Upon
consummation of the IPO, all principal and accrued interest due under the Secured Notes, totaling approximately $23.5 million
converted into 6,264,659 shares of common stock of the Company, which was based on a conversion price of $3.75, in accordance
with the terms of the Secured Notes.</font></p>
5267000
3197000
21000
5356000
3680000
480000
440364
6264659
187500
2014-01-14
187500
7000
14000
0
3000
2000
4000
2000
2000
13000
32000
301000
303000
-2000
2.03
3.41
33.75
P3Y8M12D
1200000
5.70
104000
47000
31000
344000
1000
22000
99000
10000
46000
9000
245000
94000
0.4654
P6Y1M13D
0.0162
0.00
2300000
570000
3.75
23500000
70556000
70452000
881000
571000
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"><b>3.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>Summary
of Significant Accounting Policies</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Basis
of presentation</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
accompanying condensed financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange
Commission (the “SEC”). Accordingly, since they are interim financial statements, the accompanying condensed financial
statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments
consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. In the opinion of the Company’s management, all adjustments,
consisting of only normal and recurring adjustments, necessary for a fair presentation of the Company’s financial position
and the results of operations for the periods presented have been included. Interim results are not necessarily indicative of
results for a full year. The condensed financial statements and notes should be read in conjunction with the financial statements
and notes for the year ended December 31, 2015 which are included in the Company’s final IPO prospectus filed with the SEC
Pursuant to Rule 424(b)(4) of the Securities Act of 1933 on August 8, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Deferred
offering costs</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company complies with the requirements of the ASC 340, <i>Other Assets and Deferred Costs</i>. Deferred offering costs of approximately
$234,000 consist principally of legal, accounting, and filing fees incurred through the balance sheet date that are related to
the proposed offering and that will be charged to capital upon the receipt of the capital raised or charged to expense if the
proposed offering is not completed. The offering was completed on August 10, 2016.<i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Stock-based
compensation</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company computes stock-based compensation in accordance with authoritative guidance. The Company uses the Black-Scholes-Merton
option-pricing model to determine the fair value of its stock options. The Black-Scholes-Merton option-pricing model includes
various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected
volatility and the expected risk-free interest rate, among others. These assumptions reflect the Company’s best estimates,
but they involve inherent uncertainties based on market conditions generally outside the control of the Company.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">As
a result, if other assumptions had been used, stock-based compensation cost, as determined in accordance with authoritative guidance,
could have been materially impacted. Furthermore, if the Company uses different assumptions on future grants, stock-based compensation
cost could be materially affected in future periods.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company accounts for the fair value of equity instruments issued to non-employees using either the fair value of the services
received or the fair value of the equity instrument, whichever is considered more reliable<i>. </i>The Company utilizes the Black-Scholes-Merton
option-pricing model to measure the fair value of options issued to non-employees.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i>Use
of estimates</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
preparation of condensed financial statements in conformity with GAAP requires the Company’s 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 expenses during the reporting period. Significant estimates
include the fair value of stock-based compensation and warrants, valuation allowance against deferred tax assets and related disclosures.
Actual results could differ from those estimates.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><i> </i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; text-align: left; margin-top: 0; margin-bottom: 0"><font style="font: 10pt Times New Roman, Times, Serif"><i>Recent
accounting pronouncements</i></font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02, <i>Leases</i> (“ASU 2016–02”) which replaces the existing guidance in Accounting Standards
Codification, (“ASC”) Topic 840, <i>Leases</i>. The new standard establishes a right-of-use (“ROU”) model
that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than
12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition
in the income statement.   The guidance is effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years and requires retrospective application. The Company has not yet adopted this update and is currently
evaluating the impact it may have an its financial condition and results of operation</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">In
March 2016, the FASB issued ASU No. 2016-09, <i>Compensation—Stock Compensation (Topic 718),</i> (“ASU 2016-09”).  ASU
2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based
compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement
of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting
periods beginning after December 15, 2016. The Company has not yet adopted this update and is currently evaluating the impact
it may have an its financial condition and results of operation</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">On
August 26, 2016, the FASB issued ASU No. 2016-15, <i>Classification of Certain Cash Receipts and Cash Payments (a consensus of
the Emerging Issues Task Force), </i>(“ASU 2016-15”). The amendments in ASU 2016-15 address eight specific cash flow
issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a
statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in
ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years.  Early adoption is permitted, including adoption in an interim period. The Company has not yet
adopted this update and is currently evaluating the impact it may have an its financial condition and results of operation.</font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; font-weight: bold; line-height: normal; margin-top: 0px; margin-bottom: 0px; font-size-adjust: none; font-stretch: normal">
<tr style="text-align: justify; vertical-align: top">
<td style="width: 0.5in; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>8.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif; text-transform: uppercase"><b>STock
Option plan</b></font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">A
summary of the activity under the Employee Stock Option Plan and 2007 Equity Incentive Plan for the six months ended June 30,
2016 is as follows (shares in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number
of<br /> Shares</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-<br />
Average<br /> Exercise<br /> Prices</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-Average
<br />Remaining<br /> Contractual<br /> Term (In Years)</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Intrinsic
Value</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 40%; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at January 1, 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">511</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">7.05</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">27</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5.70</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Cancelled</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">538</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">6.98</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.96</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">202</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">9.11</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.36</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Vested
and expected to vest at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">522</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">7.02</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.95</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
the six months ended June 30, 2016, the Company granted options under its Employee Stock Option Plan to purchase 26,776 shares
of its common stock to its employees. The fair value of these options was approximately $71,000. No options were issued in the
three months ended June 30, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
total number of options available for grant was 75,124 as of June 30, 2016.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the
three and six months ended June 30, 2016 and 2015 (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three
Months ended <br />June 30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Six
Months ended <br />June 30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 40%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Research
and development</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">99</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">General
and administrative</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">46</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">9</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">245</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">47</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">31</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">105</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">344</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company records compensation expense for employee awards with graded vesting using the straight-line method. The Company records
compensation expense for nonemployee awards with graded vesting using the accelerated expense attribution method. The Company
recognizes compensation expense over the requisite service period applicable to each individual award, which generally equals
the vesting term. Estimated prospective forfeitures are incorporated in the determination of compensation cost to be recognized.
The Company applied an expected forfeiture rate of 4.77% to non-vested stock options for which expense was recognized during the
three and six month periods ended June 30, 2016 and 2015. The Company estimates the fair value of each option award using the
Black-Scholes-Merton option pricing model.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
Company estimated the fair value of employee and non-employee stock options using the Black-Scholes option pricing model. The
fair value of employee stock options is being amortized on a straight-line basis over the requisite service periods of the respective
awards. The weighted-average grant date fair value of options granted during the six months ended June 30, 2016 was $2.64.  The
fair value of employee stock options was estimated using the following weighted-average assumptions:</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Assumptions:</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 86%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Expected
volatility</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">46.54</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Weighted
average expected term (in years)</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6.12</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Risk-free
interest rate</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.62</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Expected
dividend yield</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility
was based upon the historical volatility for industry peers and used an average of those volatilities. The expected life of the
Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s
activity. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends
in the foreseeable future. </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
fair value of the common stock was determined by the board of directors based on a variety of factors, including valuations prepared
by third parties, the Company’s financial position, the status of development efforts within the Company, the current climate
in the marketplace and the prospects of a liquidity event, among others.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">As
of June 30, 2016, there was approximately $636,000 of total unrecognized compensation expense related to non-vested share-based
compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of
1.7 years.</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">A
summary of warrant activity for the six months ended June 30, 2016 is as follows (shares in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 80%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number
of<br /> Shares</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-<br />
Average<br /> Exercise<br /> Prices</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-Average<br />
Remaining<br /> Contractual<br /> Term (In Years)</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 58%; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at January 1, 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">303</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">3.41</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Issued</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Expired</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(2</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">33.75</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">301</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">2.03</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">3.7</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">A
summary of the activity under the Employee Stock Option Plan and 2007 Equity Incentive Plan for the six months ended June 30,
2016 is as follows (shares in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number
of<br /> Shares</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-<br />
Average<br /> Exercise<br /> Prices</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted-Average
<br />Remaining<br /> Contractual<br /> Term (In Years)</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Intrinsic
Value</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 40%; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at January 1, 2016</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">511</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">7.05</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">27</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5.70</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Cancelled</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">538</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">6.98</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.96</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Exercisable
at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">202</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">9.11</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.36</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Vested
and expected to vest at June 30, 2016</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">522</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">7.02</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">8.95</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">—</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the
three and six months ended June 30, 2016 and 2015 (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three
Months ended <br />June 30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="6" style="border-bottom: black 1pt solid; text-align: center; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>Six
Months ended <br />June 30,</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="text-align: center; font-weight: bold; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"><b>2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 40%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Research
and development</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">10</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">99</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">General
and administrative</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">46</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">9</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">94</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">245</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">47</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">31</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">105</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">344</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">The
fair value of employee stock options was estimated using the following weighted-average assumptions:</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 88%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Assumptions:</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="width: 86%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Expected
volatility</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">46.54</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Weighted
average expected term (in years)</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6.12</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Risk-free
interest rate</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.62</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Expected
dividend yield</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">%</font></td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">At
June 30, 2016 and December 31, 2015, the Secured Notes payable consisted of the following (in thousands):</font></p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<table cellspacing="0" cellpadding="0" style="font-size: 10pt; line-height: normal; width: 85%; margin-left: 0.75in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal">
<tr style="vertical-align: bottom">
<td><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: right; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>June
30, 2016</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td>
<td colspan="2" style="border-bottom: black 1pt solid; text-align: right; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b>December,
31, 2015</b></font></td>
<td style="padding-bottom: 1pt; font-weight: bold"><font style="font: 10pt Times New Roman, Times, Serif"><b> </b></font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="width: 72%; text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Senior
Notes</font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">20,708</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">14,750</font></td>
<td style="width: 1%; text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in"><font style="font: 10pt Times New Roman, Times, Serif">Accrued
interest</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,551</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,670</font></td>
<td style="text-align: left"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td></tr>
<tr style="vertical-align: bottom; background-color: rgb(204, 238, 255)">
<td style="text-align: left; text-indent: 0in; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">Debt
Discount</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(387</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td style="padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: right; border-bottom: black 1pt solid"><font style="font: 10pt Times New Roman, Times, Serif">(325</font></td>
<td style="text-align: left; padding-bottom: 1pt"><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: left; text-indent: 0in; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif">Senior
secured convertible promissory notes payable, net</font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">22,872</font></td>
<td style="text-align: left; padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="padding-bottom: 2.5pt"><font style="font: 10pt Times New Roman, Times, Serif"> </font></td>
<td style="text-align: left; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right; border-bottom: black 2.5pt double"><font style="font: 10pt Times New Roman, Times, Serif">16,095</font></td></tr>
</table>
7400000
785700
131000
325000
438000
0.10
0.10
7300000
0.12
2016-05-31
7372557
4400000
748000
1300000
562000
795000
0
1000
3199447
538000
511000
202000
522000
6.98
7.05
5.70
9.11
7.02
P8Y11M16D
P8Y4M10D
P8Y11M12D
26776
75124
71000000
0.0477
2.64
636000
P1Y8M12D
5687000
3420000
1700000
0.20
-1308000
-746000
-561000
-792000
18200000
<p><font style="font: 10pt Times New Roman, Times, Serif">An initial public offering (IPO) with net proceeds
of at least $15 million and a post-IPO valuation of at least $50 million and that the directors and officers continue to be in
service with the Company until the IPO is closed.</font></p>
<table cellspacing="0" cellpadding="0" style="margin-top: 0px; font-size: 10pt; font-weight: bold; margin-bottom: 0px">
<tr style="text-align: justify; vertical-align: top">
<td style="text-align: left; width: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"><b>2.</b></font></td>
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif"><b>LIQUI<font style="text-transform: uppercase">DITY
</font>AND MANAGEMENT PLANS</b></font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">At
June 30, 2016 the Company had cash of approximately $5.3 million, a working capital deficit of approximately $18.2 million and
Senior Secured Convertible Notes (the “Secured Notes”) with a principal and interest balance of approximately $22.9
million. The Company has not generated revenues since inception and has incurred recurring operating losses. At June 30, 2016
the Company had an accumulated deficit of approximately $88.5 million. In August 2016 the Company completed its IPO of 3,680,000
shares of common stock, raising net proceeds of approximately $24.7 million. In connection with the completion of the IPO, the
Secured Notes automatically converted into 6,264,659 shares of common stock, thus extinguishing the debt associated with the Secured
Notes.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif"> </font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="font: 10pt Times New Roman, Times, Serif">During
the second half of 2016 and in 2017, the Company’s operating plans include increased headcount in research and development
and sales and business development. Based on the funds it has available as of the date of the filing of this report, including
proceeds of its IPO, the Company believes that it has sufficient capital to fund its current business plans over, at least, 12
months from the date of filing this quarterly report, and to enable one or more customers to license and qualify its technology
and start full-scale industrial production of devices that incorporate the Company’s technology. However, as a development
stage company the Company is subject to all the risks inherent in the initial organization, financing, expenditures, complications
and delays in a new business. Accordingly, the Company may require additional capital, the receipt of which there can be no assurance.
In the event the Company requires additional capital, there can be no guarantee that funds will be available on commercially reasonable
terms, if at all.</font></p>