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<A HREF="#fa47201_corium_international,_inc.">  CORIUM INTERNATIONAL, INC.</A> <BR>
<A HREF="#fq47201_corium_international,_inc.">  CORIUM INTERNATIONAL, INC.</A><BR></font>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As filed with the Securities and Exchange Commission on March&nbsp;3, 2014  </B></FONT></P>

<P ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Registration No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B></FONT></P>


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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>Washington, D.C. 20549  </B></FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>FORM&nbsp;S-1<BR>  </B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>REGISTRATION STATEMENT<BR>
UNDER<BR>
THE SECURITIES ACT OF 1933  </B></FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>Corium International,&nbsp;Inc.<BR>  </B></FONT><FONT  style="font-size:8pt;line-height:9pt;">(Exact name of registrant as specified in its charter) </FONT></P>

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<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Delaware</B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B> 2834</B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(Primary Standard Industrial<BR>
Classification Code Number)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B> 38-3230774</B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(I.R.S. Employer<BR>
Identification Number)</FONT></TD>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Corium International,&nbsp;Inc.<BR>
235 Constitution Drive<BR>
Menlo Park, California 94025<BR>
(650)&nbsp;298-8255<BR>  </B></FONT><FONT  style="font-size:8pt;line-height:9pt;">(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) </FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Peter D. Staple<BR>
Chief Executive Officer<BR>
Corium International,&nbsp;Inc.<BR>
235 Constitution Drive<BR>
Menlo Park, California 94025<BR>
(650)&nbsp;298-8255</B></FONT><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(Name, address, including zip code, and telephone number, including area code, of agent for service) </FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Please send copies of all communications to:  </B></FONT></P>

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<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Cynthia Clarfield Hess<BR>
Robert A. Freedman<BR>
Effie Toshav<BR>
Fenwick&nbsp;&amp; West&nbsp;LLP<BR>
801 California Street<BR>
Mountain View, California 94041<BR>
(650)&nbsp;988-8500</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B> Robert S. Breuil<BR>
Chief Financial Officer<BR>
Corium International,&nbsp;Inc.<BR>
235 Constitution Drive<BR>
Menlo Park, California 94025<BR>
(650)&nbsp;298-8255</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B> B. Shayne Kennedy<BR>
Daniel E. Rees<BR>
Latham&nbsp;&amp; Watkins&nbsp;LLP<BR>
650 Town Center Drive, 20<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">th</font>&nbsp;Floor<BR>
Costa Mesa, California 92626<BR>
(714)&nbsp;540-1234</B></FONT></TD>
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<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.  </B></FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act, check the
following box:&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">If this Form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule&nbsp;12b-2 of the Exchange Act. (Check one): </FONT></P>
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<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Large&nbsp;accelerated&nbsp;filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Accelerated&nbsp;filer&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Non-accelerated&nbsp;filer&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT><BR></FONT> <FONT  style="font-size:8pt;line-height:9pt;">(Do not check if a<BR>
smaller reporting company)</FONT></TD>
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<TD ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Smaller&nbsp;reporting&nbsp;company&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>CALCULATION OF REGISTRATION FEE  </B></FONT></P>

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<TH ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Title of Each Class of<BR>
Securities to be Registered</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Proposed Maximum<BR>
Aggregate<BR>
Offering Price<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)(2)</font></B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount of<BR>
Registration<BR>
Fee</B></FONT><BR></TH>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:4pt;text-indent:-4pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B> </B></FONT><FONT  style="font-size:8pt;line-height:9pt;">Common Stock, $0.001 par value</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$50,000,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$6,440.00</FONT></TD>
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<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Estimated
solely for the purpose of calculating the amount of the registration fee in accordance with Rule&nbsp;457(o) of the Securities Act
of 1933, as amended.  </FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
additional shares that the underwriters have the right to purchase from the Registrant. </FONT></DD></DL>
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<P style="font-family:arial;"><FONT SIZE=2><B>The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the
Registrant shall file&nbsp;a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a), may determine.</B></FONT></P>
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</FONT> <FONT COLOR="#FF1100" SIZE=2>The information in this preliminary prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and
we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. </FONT></P>

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 </B></FONT><FONT COLOR="#FF1100" SIZE=2>SUBJECT TO COMPLETION, DATED MARCH&nbsp;3, 2014 </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>PRELIMINARY PROSPECTUS</B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares  </B></FONT></P>

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<IMG SRC="g620825.jpg" ALT="LOGO" WIDTH="315" HEIGHT="105">
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=5><B>Corium International,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>Common Stock  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are offering&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock. This is our
initial public offering of our common stock and no public market currently exists for
our common stock. We expect the initial public offering price to be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. We intend to apply to list our common stock on the NASDAQ Global Market
under the symbol "CORI." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
are an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public reporting requirements for this
prospectus and future filings. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Investing in our common stock involves risks. See "Risk Factors" beginning on page&nbsp;13 of this prospectus.</B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.</B></FONT></P>

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<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="89pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Per Share </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Public Offering Price</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Underwriting Discounts and Commissions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Proceeds to Corium before Expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>Delivery
of the shares of common stock is expected to be made on or
about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;, 2014. We have granted the underwriters an option for a period of 30&nbsp;days to purchase an additional
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock. If the underwriters exercise the option in full,
total underwriting discounts and commissions payable by us will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, and the total proceeds
to us before expenses will be $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. </FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><I> Joint Book-Running Managers</I></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=4><B> Jefferies</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=4><B><BR>&nbsp;</B></FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=4><B>Leerink Partners</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><BR></TD>
<TD style="font-family:arial;"><FONT SIZE=4><B><BR>&nbsp;</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=4><B><BR>
&nbsp;</B></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><I> Co-Managers</I></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=4><B> Needham&nbsp;&amp; Company</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=4><B><BR>&nbsp;</B></FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=4><B>FBR</B></FONT></TD>
</TR>
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 <p style="font-family:arial;line-height:1pt;margin-left:18pt;"><font> </FONT> <FONT SIZE=2>
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&nbsp;&nbsp;&nbsp;
</font></p><p align=center style="font-family:arial;"><font> </FONT> <FONT SIZE=2>
Prospectus
dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;, 2014 </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="BG47201A_main_toc"></A> </FONT></P>

<A NAME="bg47201_table_of_contents"> </A>

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<P style="font-family:arial;"><FONT SIZE=2><B> TABLE OF CONTENTS  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> <A NAME="BG47201_TOC"></A>  </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="25pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Page </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ca47201_prospectus_summary"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Prospectus Summary</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ca47201_prospectus_summary"><FONT SIZE=2>1</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#da47201_risk_factors"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk Factors</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#da47201_risk_factors"><FONT SIZE=2>13</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_special_note_regarding_forward-looking_statements"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Special Note Regarding Forward-Looking Statements</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_special_note_regarding_forward-looking_statements"><FONT SIZE=2>48</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_industry_and_market_data"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Industry and Market Data</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_industry_and_market_data"><FONT SIZE=2>48</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_use_of_proceeds"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Use of Proceeds</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_use_of_proceeds"><FONT SIZE=2>49</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_dividend_policy"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Dividend Policy</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#di47201_dividend_policy"><FONT SIZE=2>49</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dk47201_capitalization"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capitalization</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dk47201_capitalization"><FONT SIZE=2>50</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dm47201_dilution"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Dilution</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dm47201_dilution"><FONT SIZE=2>53</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#do47201_selected_financial_data"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Selected Financial Data</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#do47201_selected_financial_data"><FONT SIZE=2>55</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dq47201_management_s_discussion_and_an__man03466"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Management's Discussion and Analysis of Financial Condition and Results of
Operations</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dq47201_management_s_discussion_and_an__man03466"><FONT SIZE=2>57</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#du47201_business"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Business</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#du47201_business"><FONT SIZE=2>81</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dy47201_management"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Management</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#dy47201_management"><FONT SIZE=2>105</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ea47201_executive_compensation"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Executive Compensation</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ea47201_executive_compensation"><FONT SIZE=2>113</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ec47201_related_party_transactions"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Related Party Transactions</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ec47201_related_party_transactions"><FONT SIZE=2>122</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ee47201_principal_stockholders"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Principal Stockholders</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ee47201_principal_stockholders"><FONT SIZE=2>125</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eg47201_description_of_capital_stock"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Description of Capital Stock</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eg47201_description_of_capital_stock"><FONT SIZE=2>128</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ei47201_shares_eligible_for_future_sale"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Shares Eligible for Future Sale</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ei47201_shares_eligible_for_future_sale"><FONT SIZE=2>133</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ek47201_material_u.s._federal_income_t__mat03146"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of
Common Stock</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ek47201_material_u.s._federal_income_t__mat03146"><FONT SIZE=2>135</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#em47201_underwriting"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Underwriting</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#em47201_underwriting"><FONT SIZE=2>139</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_legal_matters"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Legal Matters</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_legal_matters"><FONT SIZE=2>144</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_experts"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Experts</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_experts"><FONT SIZE=2>144</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_where_you_can_find_additional_information"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Where You Can Find Additional Information</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#eo47201_where_you_can_find_additional_information"><FONT SIZE=2>144</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ITFS"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Index to Financial Statements</FONT></A></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><A HREF="#ITFS"><FONT SIZE=2>F-1</FONT></A></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing
prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give
you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations, and prospects
may have changed since that date. </FONT></P>

<P style="font-family:arial;"><FONT
SIZE=2><B>Until&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2014 (25&nbsp;days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.</B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For
investors outside the United States: Neither we nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States. </FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
<DIV style="width:100%;border:#000000 solid 1pt;padding-top:12pt;padding-right:12pt;padding-bottom:1pt;padding-left:12pt;">
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<A NAME="toc_ca47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  PROSPECTUS SUMMARY    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I>This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and
does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You
should carefully consider, among other things, our financial statements and the related notes and the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.</I></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ca47201_corium_international,_inc."> </A>
<A NAME="toc_ca47201_2"> </A>
<BR></FONT><FONT SIZE=2><B>  CORIUM INTERNATIONAL,&nbsp;INC.    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Overview  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or
self-funded programs at earlier stages. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. Our partners include The Procter&nbsp;&amp; Gamble Company, or P&amp;G, Par Pharmaceutical, Inc., Teva
Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies. We have the capability to develop and manufacture our own product candidates
and are one of only a few independent companies that develops and manufactures transdermal products for other parties. We believe our proprietary manufacturing processes, know-how and custom equipment
give us a distinct competitive advantage over other pharmaceutical, consumer products and manufacturing companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Transdermal
drug delivery is the transport of drugs through the skin for absorption into the body. We have developed two proprietary technology platforms, Corplex and MicroCor, that we believe offer
significant competitive advantages over existing transdermal approaches. Corplex and MicroCor are designed to be adapted broadly for use in multiple drug categories and indications. We use our Corplex
technology to create advanced transdermal and transmucosal systems for small molecules that utilize less of the active ingredient while achieving the same or better therapeutic effect, that can adhere
well to either wet or dry surfaces, and that can hold additional ingredients required to aid the diffusion of low-solubility molecules through the skin without losing adhesion. Our MicroCor technology
is a biodegradable microstructure system currently in development that enables the painless and convenient delivery of biologics that otherwise must be delivered via injection. Biodegradable
microstructures integrate drug molecules and a biocompatible polymer. With slight external pressure, the microstructures penetrate the outer layers of the skin and dissolve to release the drug for
local or
systemic absorption. MicroCor is designed to expand the market for transdermal delivery of biologics, which cannot currently be delivered by other FDA-approved transdermal technologies. </FONT></P>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
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 <P style="font-family:arial;"><FONT SIZE=2>In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase&nbsp;3
development by our exclusive marketing partner, Agile. AG200-15 is a combined hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, through the skin at
levels comparable to low-dose oral contraceptives, in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required
before marketing a new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional
Phase&nbsp;3 clinical trial based on this guidance and intends to supplement the NDA with the results of the additional Phase&nbsp;3 clinical trial. Based on market research conducted by Agile,
AG200-15 has the potential to reach a peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market
share of hormonal contraceptive prescriptions in the United States currently represents approximately $108&nbsp;million of annual gross sales. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
are developing two additional products utilizing our proprietary technologies that we plan to advance into Phase&nbsp;2 trials in 2014 and 2015. MicroCor hPTH(1-34) utilizes our MicroCor
technology to deliver parathyroid hormone, a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form. Corplex Tamsulosin is a patch being developed to
deliver tamsulosin to patients with benign prostatic hyperplasia, or enlarged prostate. Tamsulosin is a drug that relaxes smooth muscle cells in the prostate and bladder neck, thereby decreasing the
blockage of urine flow that occurs with an enlarged prostate. It is designed to deliver a controlled dose over several days and to reduce side effects compared to currently marketed products. We are
not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Transdermal Drug Delivery Industry  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Transdermal delivery and transmucosal delivery, or delivery through mucous membranes, offer patients more convenient, non-invasive and comfortable
methods of drug delivery. The benefits of transdermal and transmucosal delivery systems over other dosage forms generally include enhancing the efficacy and reducing the side effects of a drug by
controlling the rate of delivery and absorption, avoiding the undesirable breakdown of drugs in the liver associated with gastrointestinal absorption, and improving patient compliance and long-term
adherence to therapy. According to Datamonitor, the global value of the market for systemic transdermal products, including patches, was approximately $20&nbsp;billion in 2010 and is expected to
grow to approximately $30&nbsp;billion by 2015. We believe this growth is driven by the increasing availability of transdermal systems for important therapeutic applications and changing disease
demographics. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Despite
the benefits of current transdermal delivery products, many key challenges prevent broader use and applicability: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Skin Irritation and Adhesion:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;A
number of patches cause skin irritation and sensitization, often brought on by the inclusion of skin-permeating ingredients necessary to overcome the limitations of traditional patch technologies.
Some patches also experience adhesion failure resulting from excess moisture or heat while worn by the patient, for example when swimming, bathing or during other normal daily activities. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Safety and Drug Loading:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;In order to
enable effective diffusion of sufficient amounts of drug through the skin, many transdermal delivery systems must incorporate large amounts of drug in the patch. After use, a large residual amount of
the drug remains and must be disposed of carefully, especially if the drug is potent or toxic. In some cases, only a small amount of the total drug loaded in a patch is actually delivered into the
bloodstream.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Delivery Limitation:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The
pharmaceutical industry has been unable to formulate certain drugs, especially biologics, for transdermal drug delivery, given the size and complexity of the molecules. These drugs generally are
delivered by injection, which causes pain and often requires administration by a medical professional. In addition, these drugs generally must be refrigerated, require biohazard disposal and present
the risk of accidental needle sticks. Many small molecules are also difficult to deliver transdermally, especially those that are not soluble in water or are unstable in the presence of air or water. </FONT></DD></DL>
</UL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
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 <P style="font-family:arial;"><FONT SIZE=2>One
of the greatest opportunities in transdermal drug delivery is the ability to deliver biologics including vaccines, peptides and proteins, without the use of an injection. A number of companies
have attempted to develop technologies to address this challenge, but many have experienced commercial and development failures due to the formulation, scale-up and manufacturing complexities. Some of
these systems have relied upon large, complex and costly devices, usually with external power sources, which adversely impact their usability and reproducibility. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our Solution  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are developing and commercializing advanced transdermal drug delivery products that are intended to expand the number and types of drugs that can
be delivered transdermally. We believe our technologies can be applied to improve the therapeutic value of many drugs by controlling the levels of drug delivered over a longer period time. They are
also designed to eliminate the need for injections of certain drugs and to improve adhesion and skin irritation profiles. Our technologies also allow us to create cost-effective products, especially
by eliminating the need for complex devices and refrigeration throughout the supply chain. Our two proprietary platforms, Corplex and MicroCor, separately address some of the primary shortcomings of
traditional transdermal drug delivery. We believe our track record within the industry demonstrates our ability to develop commercially successful products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Corplex Technology  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Corplex is a novel technology incorporating combinations of materials that utilize the properties of both traditional pressure-sensitive adhesives, or
PSAs, as well as bioadhesives, to enable the transdermal delivery of small molecules. Pressure-sensitive adhesives provide adhesion to dry surfaces, such as skin, and reduced or no adhesion to wet
surfaces, while bioadhesives adhere to wet surfaces, including the oral mucosa, with little or no adhesion to dry surfaces. Corplex encompasses combinations and blends of polymers to provide a range
of properties that improve adhesion in wet or dry conditions and delivery of active ingredients that may otherwise be difficult to formulate for transdermal delivery. We use our Corplex technology in
the Crest Whitestrips line of products and in our clinical stage Corplex Tamsulosin, as well as in other products in development. Additionally, we have one product utilizing Corplex technology for
which an Abbreviated New Drug Application, or ANDA, has been filed. An ANDA is a less burdensome application process that allows for an approval by the FDA of a generic drug product by demonstrating
bioequivalence to the innovator drug product containing the same active ingredient. Our Corplex transdermal delivery systems provide advanced custom solutions for small molecules and feature the
following benefits: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Flexibility:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Corplex is adaptable
and provides the ability to formulate adhesives to complement a drug's unique properties, enabling new drug dosage forms and delivery options.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Ease-of-Use:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our Corplex systems are
designed to improve patient compliance by being easy to use, self-administered and discreet. In addition, Corplex products are suitable for long-term skin contact and are designed to be easily removed
with minimal damage to skin and without leaving a residue.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Compatibility:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Corplex can
incorporate liquid-based components that improve stability and diffusion of the drug without compromising adhesion.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Efficient and Controlled Drug
Delivery:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Because Corplex enables drugs to diffuse more easily through the skin, we can design Corplex products to require less drug to
achieve the desired therapeutic result.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Improved Therapeutic Profile:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;By
achieving a steady dosage level, Corplex systems are designed to minimize side effects that otherwise result from peak concentrations of the drug when delivered with oral or other dosage forms. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
believe the combination of these benefits make Corplex well-suited for the development of a variety of healthcare products that require adhesive properties, including prescription transdermal drug
products and personal care, oral care, wound care, medical device and diagnostics products. </FONT></P>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
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 <P style="font-family:arial;"><FONT SIZE=2><B> MicroCor Technology  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>MicroCor is a biodegradable microstructure patch technology that we are developing to enable transdermal delivery of biologics, in a disruptive
platform that reduces the need for needles and syringes and enables global distribution of biologics without requiring refrigeration. Because biologics cannot diffuse through the skin due to their
size, some mechanism is required to introduce these molecules beyond the outer layer of the skin, or stratum corneum, where they can be absorbed into the body. The further a delivery system penetrates
beyond the stratum corneum, the more likely it is to cause pain, bleeding and bruising. By integrating active ingredients directly into arrays of biodegradable microstructures, our MicroCor technology
is designed to penetrate only the stratum corneum to release the drug for local or systemic absorption, while eliminating the pain, bleeding and bruising that can be caused by needles and other active
delivery devices. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
believe MicroCor will offer the following advantages over other delivery technologies in development for biologics: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Minimal Discomfort:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our MicroCor
systems feature an array of microstructures that penetrate the stratum corneum to only a few hundred microns in depth, deep enough for effective delivery without causing pain, bruising or bleeding. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Dose Sparing:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;MicroCor needles are
biodegradable and dissolve in the skin once the system is applied. In our clinical studies to date, we determined that over 90% of the drug contained in a single use of a MicroCor system was delivered
into the skin each time the system was administered. We expect our MicroCor systems to reduce drug waste and the costs associated with the excess drug that may be required in less efficient delivery
technologies.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Thermally Stable:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our MicroCor
systems do not contain moisture, and therefore are designed to be room temperature stable, enabling both stockpiling and worldwide delivery without refrigeration, thereby minimizing drug or product
spoilage.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>No Biohazard Disposal:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Because
MicroCor needles completely dissolve in the skin, no sharps remain after use. We believe this feature will allow disposal of the system in a traditional trash receptacle without risk of accidental
needle sticks or abuse associated with residual drug left in the delivery system.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Ease-of-Use:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;MicroCor products are
designed to be self-administered, fully-integrated, single-use systems that are worn for only a few minutes. Unlike other delivery systems, MicroCor requires no additional parts, electrical power or
complex external enabling devices to effectively deliver the drug or product.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Cost-Effective:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;In addition to the
cost savings associated with dose sparing and thermal stability, MicroCor's fundamental design and our proprietary molding process also minimize costs associated with manufacturing MicroCor systems. </FONT></DD></DL>
</UL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
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 <P style="font-family:arial;"><FONT SIZE=2><B> Our Products and Partners  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table identifies the products we have developed that are marketed by our partners, products in our advanced pipeline and products
currently awaiting FDA approval. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><B>
<IMG SRC="g11248.jpg" ALT="GRAPHIC" WIDTH="684" HEIGHT="283">
  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We
currently have six marketed products. Clonidine TDS is a treatment for hypertension that we developed as a generic version of the branded drug known as Catapres TTS. Clonidine TDS was launched in
2010 and is marketed by Teva and manufactured by us exclusively for Teva. Fentanyl TDS is a treatment for management of chronic pain, including cancer-related pain, under specified conditions. We
developed this product as a generic version of the branded product known as Duragesic. Fentanyl TDS was approved in 2007 and is currently marketed by Par and manufactured by us exclusively for Par.
Crest Whitestrips are a series of four products for oral care that we co-developed with P&amp;G. These products utilize our Corplex polymer technology and are sold under the brands Advanced Vivid,
Professional Effects, One Hour Express and Flex-Fit. We are the sole supplier of this oral care system for P&amp;G. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>There
are three products in our advanced pipeline. The Agile AG200-15 product is a combination hormonal contraceptive patch that contains the active ingredients ethinyl estradiol (an estrogen) and
levonorgestrel (a progestrin), both of which have an established history of efficacy and safety in currently marketed combination oral contraceptives. AG200-15 is designed to deliver both hormones at
levels comparable to low-dose oral contraceptives. By delivering these active ingredients over seven days, this product is designed to promote enhanced compliance by patients with a convenient,
easy-to-use format. If approved, the patch will be applied once weekly for three weeks, followed by a week without a patch. Agile designed AG200-15, we performed the
process development and manufacturing, and we are currently working with Agile to prepare for an additional Phase&nbsp;3 clinical trial. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>MicroCor
hPTH(1-34) is a transdermal system designed to use our MicroCor technology to provide simplified delivery of parathyroid hormone, the active ingredient of Forteo, an injectable product for
the treatment of severe osteoporosis. With a simple one-step application process, short wear time and a favorable pharmacokinetic profile, MicroCor hPTH(1-34) represents, if approved, an opportunity
to effectively deliver an improved anabolic therapy and increase patient compliance in the osteoporosis market. We believe MicroCor hPTH(1-34) is the only integrated, single step application PTH
transdermal product currently in clinical development. We have self-funded this program since inception, and are planning to advance it into Phase&nbsp;2 clinical trials with proceeds from this
offering. We expect to partner with a company active in bone health, women's health or endocrinology to distribute and sell the product, if approved. </FONT></P>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
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<P style="font-family:arial;"><FONT SIZE=2>Corplex
Tamsulosin is a transdermal patch designed to use our Corplex technology to provide controlled delivery of tamsulosin, the active ingredient in the leading once-daily capsule product for
treatment of benign prostatic hyperplasia, or BPH, marketed under the brand name Flomax. By providing a controlled and relatively steady level of drug over an extended time, Corplex Tamsulosin is
intended to alleviate the side effects associated with peak blood concentrations of the drug in its current oral formulation and to provide a consistent level of efficacy. Our completed Phase&nbsp;1
pharmacokinetic study in healthy subjects demonstrated that Corplex Tamsulosin enabled delivery of the drug at blood concentration levels equivalent to the effective levels provided with the oral
dosage form, but with an extended and controlled release profile. If successfully commercialized, Corplex Tamsulosin could be the only patch available for tamsulosin. We have self-funded this program
since inception, and are planning to advance it into Phase&nbsp;2 clinical studies with proceeds from this offering in the first half of 2015. We expect to partner this product with a company with
marketing experience and capability in the urology field. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Moreover,
we have two products currently pending FDA approval. We have developed a three-day generic transdermal product for the prevention of nausea and vomiting associated with motion sickness with
Teva, and the ANDA is currently pending with the FDA. We have completed all of the development, scale-up and clinical activities for submission of the ANDA and expect this product to launch in 2014,
if approved. In addition, we have developed a three-to-four-day generic transdermal product for treatment of a urologic condition with Teva, and the ANDA is currently pending with the FDA. We have
completed all of the required development, scale-up
and clinical activities for submission of the ANDA and expect this product to launch in 2015, if approved, pursuant to the terms of a patent settlement agreement between Teva and Actavis. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our Strategy  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We believe our balanced portfolio strategy enables us to capitalize on our proven strengths and technological advantages while diversifying risk and
limiting our financial exposure. The key components of our strategy are to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Expand our existing revenue base by
commercializing our advanced pipeline.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to work with our existing partners to gain regulatory approval and commercially launch
the AG200-15 contraceptive patch with Agile and a motion sickness patch and a urology patch with Teva. We also plan to develop, launch and manufacture new oral care products and certain other new
products outside of oral care, through our partnership with P&amp;G.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Advance the development of proprietary products
already in development.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We plan to advance the development of MicroCor hPTH(1-34) and Corplex Tamsulosin, and selectively work with new
partners to advance certain products in our earlier stage pipeline. We intend to focus primarily on products that incorporate FDA-approved drugs, thereby allowing us to take advantage of the 505(b)(2)
regulatory pathway.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Enter into co-development and commercialization
agreements with new and existing partners for new products.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We are actively evaluating potential new product candidates that leverage our
proprietary technologies. Additionally, we plan to transition our MicroCor technology feasibility programs with leading pharmaceutical partners into co-development partnerships to develop and
commercialize transdermal system-based vaccines and proprietary biologic products.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Expand our MicroCor manufacturing
capabilities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to further develop MicroCor manufacturing capabilities to commercial scale, enabling late-stage development,
launch and commercial production of multiple new high-margin biologic products. </FONT></DD></DL>
</UL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
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<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
<DIV style="width:100%;border:#000000 solid 1pt;padding-top:12pt;padding-right:12pt;padding-bottom:1pt;padding-left:12pt;">
 <UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Further leverage our core competencies and
proprietary technologies.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to apply our technologies to create and develop a portfolio of new transdermal products in areas of
significant unmet need&nbsp;&#151; in particular, chronic, degenerative and progressive conditions affecting the brain and central nervous system, such as Alzheimer's and Parkinson's
diseases. We are focusing our self-funded new product efforts on products that we could commercialize with a relatively small specialty sales force. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Risks Related to Our Business  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our ability to implement our business strategy is subject to numerous risks and uncertainties, some of which are inherent in our business of
developing, manufacturing and commercializing pharmaceutical products. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the
heading "Risk Factors," prior to making an investment in our common stock. These risks include, among others, the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We have limited operating revenues, a history of operational losses and an
accumulated deficit of $94.5&nbsp;million as of December 31, 2013, and we may not achieve or sustain profitability; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We are dependent on the commercial success of our Clonidine TDS,
Fentanyl
TDS and Crest Whitestrips, and although we are generating revenues from sales of our products, we expect a decline in revenues generated by our Clonidine TDS and Fentanyl TDS products; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT
SIZE=2>We depend on a few partners for a significant amount of our revenues; in
fiscal 2013 and the three months ended December&nbsp;31, 2013, three of our partners accounted for 90% and 94% of our total revenues, respectively; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We have had significant and increasing
operating expenses and may require
additional funding; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We or our partners may choose not to continue developing or commercialize a
product or product candidate at any time during development or after approval, which would reduce or eliminate our potential return on investment for that product or product candidate; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT
SIZE=2>Our near-term product revenue growth heavily relies on the success of the
AG200-15 contraceptive patch, which has not yet been approved by the FDA, and for which the FDA has issued a complete response letter identifying certain issues to be addressed before approval can be
granted; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We may not be able to obtain and enforce patent rights or other intellectual
property rights that cover our drug delivery systems and technologies with sufficient breadth; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We are dependent on numerous third parties in our supply chain for the
commercial supply of our products; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Our current and future products will be subject to ongoing and continued
regulatory review, which may result in significant expense and limit the commercialization of such products; for example, the FDA has inspected our manufacturing facilities multiple times over the
last five years and has issued five Forms&nbsp;483 that describe deficiencies in our manufacturing and quality systems, and we have made significant investments in addressing these issues; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT
SIZE=2>We may encounter manufacturing failures that could impede or delay
commercial production of our products or product candidates, or the preclinical and clinical development or regulatory approval of our product candidates; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We face product liability
exposure, and if successful claims are brought
against us, we may incur substantial liability if our insurance coverage for those claims is inadequate; to date we have settled 18 product liability claims, and we currently have one suit pending; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT
SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We have been subject to product recalls in the past, including recalls of
Fentanyl TDS in 2008 and 2010, and may be subject to additional product recalls in the future; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>We face intense competition, in both our delivery systems and products,
including from generic drug products; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>If we or our partners are unable to achieve and maintain adequate levels of
coverage and reimbursement for our products, or any future products we may seek to commercialize, their commercial success may be severely hindered; </FONT></DD></DL>
</UL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
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<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
<DIV style="width:100%;border:#000000 solid 1pt;padding-top:12pt;padding-right:12pt;padding-bottom:1pt;padding-left:12pt;">
 <UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>The report of our independent registered public accounting firm on our 2013
financial statements contains a going concern modification, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern; and </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT
SIZE=2>Our principal stockholder has the ability to control our business, which may
be disadvantageous. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Our Corporate Information  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We were incorporated in Michigan in 1995 as Corium Corporation and in 1996 as Converting Systems,&nbsp;Inc. In 2002, these companies were merged and
re-named Corium International,&nbsp;Inc. and our place of incorporation changed to Delaware. Our principal executive offices are located at 235 Constitution Drive, Menlo Park, CA 94025, and our
telephone number is (650)&nbsp;298-8255. We have research and development operations and corporate offices in Menlo Park, California and pilot-scale and commercial-scale manufacturing facilities in
Grand Rapids, Michigan. Our website address is www.coriumgroup.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not
rely on any such information in deciding whether to purchase our common stock. We have included our website address in this prospectus solely as an inactive textual reference. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Unless
the context indicates otherwise, as used in this prospectus, the terms "Corium," "we," "us" and "our" refer to Corium International,&nbsp;Inc., a Delaware corporation. We registered the
trademarks "Corplex" and "MicroCor" in the United States, European Union, Canada, Australia and Japan as well as the Russian Federation and Madrid Protocol. The "Corium" logo and certain product names
contained in this prospectus are our common law trademarks. This prospectus also includes references to trade names, trademarks and service marks of other entities, and those trade names, trademarks
and service marks are the property of their respective owners. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or
endorsement or sponsorship of us by, these other companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
fiscal year ends on September&nbsp;30. Throughout this prospectus, references to "fiscal" refer to the years ended September&nbsp;30. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Emerging Growth Company  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until
the earlier of (1)&nbsp;the last day of the fiscal year (a)&nbsp;following the fifth anniversary of the completion of this offering, (b)&nbsp;in which we have total annual gross revenues of at
least $1.0&nbsp;billion, or (c)&nbsp;in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded
$700.0&nbsp;million as of the prior June&nbsp;30<SUP>th</SUP>, and (2)&nbsp;the date on which we have issued more than $1.0&nbsp;billion in non-convertible debt during the prior three-year
period. We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the "JOBS Act" and references to "emerging growth company" shall have the meaning associated with it in the
JOBS Act. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions
include:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>only two years of audited financial statements in addition to any required
unaudited interim financial statements with correspondingly reduced "Management's Discussion and Analysis of Financial Conditions and Results of Operations" disclosure; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reduced
disclosure about our executive compensation arrangements; </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>no requirement that we hold non-binding advisory votes on executive
compensation or golden parachute arrangements; and </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>exemption from the auditor attestation requirement in the assessment of our
internal control over financial reporting. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
have taken advantage of some of these reduced burdens, and thus the information we provide stockholders may be different from what you might receive from other public companies in which you hold
shares. </FONT></P>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>8</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
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<BR></FONT><FONT SIZE=2><B>  THE OFFERING    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:100%;margin-left:0%;">
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<TR VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock offered by us</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock to be outstanding after our initial public offering</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT
SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Option to purchase additional shares of common stock offered by us</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT
SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Use of proceeds</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>We expect that our net proceeds from the sale of the common stock that we are offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming an initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, which is the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>The principal purpose of this offering is to create a public market for our common stock. We intend to use the
net proceeds to us from our initial public offering for Phase&nbsp;2 clinical trials for MicroCor hPTH(1-34) and Corplex Tamsulosin; scale up of production capability for our MicroCor products; formulation and development of our proprietary Corplex
products; advancement of our MicroCor technology; the repurchase of shares of common stock pursuant to the recapitalization described below; and working capital and other general corporate purposes. See "Use of Proceeds."</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk Factors</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>See "Risk Factors" beginning on page&nbsp;13 for a discussion of risks you should consider before deciding to
invest in our common stock.</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Proposed NASDAQ Global Market symbol</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><p align=left style="font-family:arial;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>"CORI"</FONT></TD>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The number of shares of common stock to be outstanding after our initial public offering is based
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock outstanding as of
December&nbsp;31, 2013. This number assumes (i)&nbsp;the conversion of all outstanding shares of our convertible preferred stock, (ii)&nbsp;the automatic net exercise of certain warrants based
on an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the range set forth on the cover of this prospectus, and (iii)&nbsp;the
recapitalization, as discussed in
greater detail below, and excludes:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.22 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>4,718,000 shares of common stock issuable upon the exercise of options
granted between January&nbsp;1, 2014 and March&nbsp;3, 2014, with an exercise price of $0.41 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December&nbsp;31, 2013, with an exercise price of $0.92 per share, that do not expire upon the completion of this offering; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December&nbsp;31, 2013, with an exercise price of $0.01 per share, that do not expire upon the completion of this offering; </FONT></DD></DL>
</UL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
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HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
<DIV style="width:100%;border:#000000 solid 1pt;padding-top:12pt;padding-right:12pt;padding-bottom:1pt;padding-left:12pt;">
 <UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>542,018 shares of common stock available for future issuance as of
March&nbsp;3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Unless
expressly indicated or the context requires otherwise, all information in this prospectus assumes:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-for-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;reverse
stock split of our outstanding
capital stock that was effected on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2014; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the conversion of all outstanding shares of our convertible preferred stock
into an aggregate of 36,034,900 shares of common stock immediately prior to the closing of this offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the recapitalization as discussed in greater detail below; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the conversion of warrants to purchase shares of our convertible preferred
stock that do not expire at the closing of this offering into warrants to purchase an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock effective immediately prior to the
closing of this offering; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the automatic net exercise of warrants to purchase an aggregate of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock effective immediately prior to the closing of this offering, which is based on an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the
midpoint of the range set forth on the cover of this prospectus; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>no exercise by the underwriters of their right to purchase up to an
additional&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the filing of our restated certificate of incorporation and the
effectiveness of our restated bylaws in connection with our initial public offering. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Recapitalization  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Prior to the completion of this offering, as of September&nbsp;30, 2013, we had outstanding certain convertible notes with principal and accrued
interest of approximately $18.9&nbsp;million and a subordinated note with principal and accrued interest of $15.7&nbsp;million, most of which are held by Essex Woodlands, our largest stockholder.
In December&nbsp;2013, we and Essex Woodlands entered into an agreement that (i)&nbsp;amended the convertible notes to provide that they will automatically convert either into 20,569,231 shares of
our common stock immediately prior to the closing of this offering or into 20,569,231 shares of our Series&nbsp;C preferred stock immediately prior to the first closing of a qualified equity
financing that occurs prior to the closing of this offering and the convertible notes will be terminated; (ii)&nbsp;amended the subordinated note to provide that it will automatically convert either
into 34,210,182 shares of our common stock immediately prior to the closing of this offering or into 34,210,182 a new series of our preferred stock (with identical rights, preferences and privileges
as our Series&nbsp;C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs
prior to the closing of this offering and the subordinated note will be terminated; and (iii)&nbsp;requires Essex Woodlands to effect the automatic conversion of all outstanding shares of our
preferred stock in connection with the completion of this offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Simultaneously,
we also entered into a repurchase agreement pursuant to which we agreed to repurchase 10,885,884 shares of our common stock for an aggregate repurchase price of $5.2&nbsp;million
from our founders. These repurchases will occur immediately prior to earlier of the consummation of this offering and the first closing of a qualified equity financing. </FONT></P>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
</DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>10</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> </i></font></p>
<DIV style="width:100%;border:#000000 solid 1pt;padding-top:12pt;padding-right:12pt;padding-bottom:1pt;padding-left:12pt;">
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ce47201_summary_financial_data"> </A>
<A NAME="toc_ce47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SUMMARY FINANCIAL DATA    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following tables summarize our historical financial data. We have derived the summary statement of operations data for fiscal 2012 and 2013 from
our audited financial statements and related notes included elsewhere in this prospectus. We derived the summary statements of operations data for the three months ended December&nbsp;31, 2012 and
2013 and the summary balance sheet data as of December&nbsp;31, 2013 from our unaudited interim condensed financial statements and related notes included elsewhere in this prospectus. Our unaudited
interim condensed financial statements were prepared on the same basis as our audited financial statements and include, in our opinion, all normal recurring adjustments that we consider necessary for
a fair presentation of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The
following summary financial data should be read in conjunction with the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus. </FONT></P>

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<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="65pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="65pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>Statement of Operations Data:</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Revenues:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">35,716</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">38,704</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9,972</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">8,100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,838</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,750</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,588</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,064</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Other revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">306</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">816</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">64</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">304</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:24pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">42,860</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">50,270</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,624</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,468</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:10pt;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Costs and operating expenses:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cost of product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">24,360</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">24,828</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,233</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,229</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cost of contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,244</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,856</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,122</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,537</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Research and development expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,966</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,496</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,052</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">861</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">General and administrative expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,645</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,525</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,792</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,810</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">512</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">541</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">131</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">130</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:16pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(57</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(177</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(37</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:24pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total costs and operating expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">43,670</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">49,069</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,287</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,530</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Income (loss) from operations</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(810</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,201</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">337</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,062</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Interest income</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Interest expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,247</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,705</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,773</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,024</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">21</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(14</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,367</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,029</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Other income</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">582</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Loss before income taxes</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,450</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,876</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Income tax benefit (expense)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss per share attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.24</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.62</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.06</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.09</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,227,342</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,452,114</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,341,554</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,521,505</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font>:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)
</font>:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">See
Note 14 to our annual audited financial statements and Note&nbsp;10 to our unaudited interim condensed financial statements for an
explanation of the method used to calculate basic and diluted net loss and pro forma net loss per share attributable to common stockholders and the weighted average number of shares used in the
computation of the per share amounts. </FONT></DD></DL>
 <p style="font-family:arial;"><font style="font-size:1pt;line-height:1pt;">&nbsp;</font></p>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>11</FONT></P>

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<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=14,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=458189,FOLIO='11',FILE='DISK131:[13ZDG1.13ZDG47201]CE47201A.;31',USER='CHE106820',CD='21-FEB-2014;07:48' -->
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><I> </i></font></p>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of December&nbsp;31, 2013 </B></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Actual </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma as<BR>
Adjusted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)(3)</font> </B></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>Balance Sheet Data:</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cash and cash equivalents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,416</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Working capital</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,958</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total assets</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">39,484</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">603</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,338</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,976</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Debt, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">65,903</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,552</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Convertible preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Redeemable common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:8pt;text-indent:-8pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total stockholders' equity (deficit)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(124,620</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Gives
effect to the following items that will occur immediately prior to the closing of this offering: (i)&nbsp;the automatic conversion of
all outstanding shares of our convertible preferred stock into common stock, (ii)&nbsp;the related reclassification of the preferred stock warrant liability to additional paid-in capital upon the
conversion of the shares of convertible preferred stock underlying the warrants that make up the liability, (iii)&nbsp;the conversion of our outstanding convertible and subordinated notes into
54,779,413 shares of common stock and the related reclassification of the subordinated note embedded derivative liability to additional paid-in capital, (iv)&nbsp;the repurchase of 10,885,884 shares
from our founders and the related reclassification of our redeemable common stock to additional paid-in capital and (v)&nbsp;the issuance
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock upon the automatic
net exercise of certain outstanding warrants based on the assumed initial offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range on the cover page this
prospectus.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Gives
effect to (i)&nbsp;the pro forma adjustments set forth above and (ii)&nbsp;the issuance and sale by us
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of
common stock in this offering, at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range on the cover page of this prospectus,
after deducting
estimated underwriting discounts and commissions and estimated offering expenses payable by us.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">A
$1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range
reflected on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders' equity (deficit) by
approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated
underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease), cash and cash equivalents, working
capital, total assets and total stockholders' equity (deficit) by approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming the assumed initial public offering price remains the
same and after deducting
the underwriting discounts and commissions. </FONT></DD></DL>
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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>  RISK FACTORS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I>Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well
as the other information in this prospectus, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations,"
before deciding whether to invest in shares of our common stock. The occurrence of any of the events or developments described in the following risk factors could have a material adverse effect on our
business, financial condition, results of operations and prospects. In such an event, the trading price of our common stock could decline, and you may lose all or part of your
investment.</I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Risks Related to Our Business and Industry  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We have limited operating revenues and a history of operational losses and may not achieve or sustain profitability.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have incurred significant operating and net losses since our inception. For fiscal 2013, we recorded net revenues of $50.3&nbsp;million and net
loss of $13.9&nbsp;million. For fiscal 2012, we recorded net revenues of $42.9&nbsp;million and net loss of $5.4&nbsp;million. In the three months ended December&nbsp;31, 2013, we recorded net
revenues of $10.5&nbsp;million and net loss of $2.1&nbsp;million. As of December&nbsp;31, 2013, we had an accumulated deficit of $94.5&nbsp;million. We expect to continue to incur net
operating losses for at least the next several years as we seek to advance our products through clinical development and regulatory approval, prepare for and, if approved, proceed to further
commercialization, and expand our operations. Our ability to generate sufficient revenues from our existing products or from any of our product candidates in development, and to transition to
profitability and generate consistent positive cash flow is uncertain, and we may continue to incur losses and negative cash flow and may never transition to profitability or positive cash flow. In
particular, we expect our operating expenses to continue to increase in the near-term as we expand our operations and transition to operating as a public company, and may not be able to generate
sufficient revenues to offset this anticipated increase in expenses. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We are dependent on the commercial success of our Clonidine TDS, Fentanyl TDS and Crest Advance Seal Whitestrips, and although we are generating revenues from sales of our
products, we expect a decline in revenues generated by our Clonidine TDS and Fentanyl TDS products.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We anticipate that, in the near term, our ability to become profitable will depend upon the commercial success of the products marketed by our
partners. To date, we have generated limited revenues from sales of these products, and in addition, we have incurred liability in association with product recalls of Fentanyl TDS. Our Fentanyl TDS
product revenues in fiscal 2013 were $15.6&nbsp;million. Our Fentanyl TDS marketing partner, Par, has provided us with forecasted demand that indicates we should expect revenues from Fentanyl TDS to
decline significantly in fiscal 2014. We are also experiencing increased competition in that market, including a new product that is manufactured by one of two suppliers of the fentanyl active
pharmaceutical ingredient, or API. In addition, Fentanyl TDS relies on a reservoir patch design instead of a matrix patch design. Although both reservoir and matrix patches have been subject to safety
concerns and recalls in the past, our current competitors, most of whom use a matrix patch, may raise questions about the design and safety of a reservoir patch and the FDA may decide that the current
reservoir patch design is a less safe design and may require the use of matrix patch technology instead. This would result in a more substantial decrease in our revenues and harm our operating
results. Our product revenues from Clonidine TDS in fiscal 2013 were $13.2&nbsp;million, significantly higher than historic levels, primarily as a result of Teva's increased market share resulting
from a major competitor's diminished ability to supply its product for seven months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be lower than they were
during fiscal 2013, and more consistent with the amount of product revenues in fiscal 2012, as this competitor has resumed supply at historic levels. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>13</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In
addition to the risks discussed elsewhere in this section, our ability to continue to generate revenues from our commercialized products will depend on a number of factors, including, but not
limited to:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>achievement of broad market acceptance and coverage by third-party payors
for our products; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the effectiveness of our partners' efforts in marketing and selling our
products; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our ability to successfully manufacture commercial quantities of our
products at acceptable cost levels and in compliance with regulatory requirements; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our ability to maintain a cost-efficient organization and, to the extent we
seek to do so, to partner successfully with additional third parties; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our ability to expand and maintain intellectual property protection for our
products successfully; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the efficacy and safety of our products; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our ability to comply with regulatory requirements, which are subject to
change. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Because
of the numerous risks and uncertainties associated with our commercialization efforts, including our reliance on our partners for the marketing and distribution of our products, and other
factors, we are unable to predict the extent to which we will continue to generate revenues from our products or the timing for when or the extent to which we will become profitable. Even if we do
achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We depend on a few partners for a significant amount of our revenues, and if we lose any of our significant partners, our business could be harmed.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The majority of our revenues come from only a few partners. For fiscal 2013, three partners, P&amp;G, Teva and Par, individually comprised approximately
23%, 33%, and 33%, respectively, of our total revenues. In the three months ended December&nbsp;31, 2013, three partners, P&amp;G, Teva and Par, individually comprised approximately 28%, 35%, and 31%,
respectively, of our total revenues. We expect that revenues from a limited number of partners will continue to account for a large portion of our revenues in the future. The loss by us of any of
these partners or a material reduction in their purchases could harm our business, results of operations, financial condition and prospects. In addition, if any of these partners were to fail to pay
us in a timely manner, it could harm our cash flow. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We or our partners may choose not to continue developing or commercialize a product or product candidate at any time during development or after approval, which would reduce
or eliminate our potential return on investment for that product or product candidate.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We currently have six products on the market, two of which are drugs approved under Abbreviated New Drug Applications, or ANDAs, and four consumer
products. In addition, three drug product candidates that we have developed in partnership with other companies are the subject of pending applications for approval by the FDA and we have four
self-funded drug product candidates in early stages of research and development. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>At
any time, we or our partners may decide to discontinue the development of a marketed product or drug product candidate or not to continue commercializing a marketed product or a drug product
candidate for a variety of reasons, including the appearance of new technologies that make our product obsolete, the position of our partner in the market, competition from a competing product, or
changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and
we will have missed the opportunity to have allocated those resources to potentially more productive uses. If one of our partners terminates a development program or ceases to market an approved or
commercial product, we will not receive any future milestone payments or royalties relating to that program or product under our partnership agreement with that party. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>14</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Our near-term product revenue growth heavily relies on the success of the AG200-15 contraceptive patch.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The near-term growth of our product revenues heavily relies on the Agile AG200-15 transdermal contraceptive patch reaching the market in 2016. Our
collaboration partner Agile has conducted Phase&nbsp;3 clinical studies and filed an NDA with the FDA for AG200-15 in April 2012. The FDA issued a "Complete Response Letter" in February 2013,
identifying certain issues, including a request for additional clinical data, which must be addressed before approval can be granted. Accordingly, Agile intends to conduct an additional Phase&nbsp;3
clinical trial, which it expects will not be completed before late 2015. We cannot assure you that Agile will be able to complete an additional clinical trial in a timely manner, or at all, and
ultimately obtain regulatory approval for the AG200-15 product, which would limit our near-term growth prospects, and would create uncertainty around the value and usefulness of our AG200-15
manufacturing facility and equipment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Since
2003, we have devoted substantial resources to the development of the AG200-15 contraceptive patch in collaboration with Agile. The success of the AG200-15 product is a key component of our
business growth over the next few years and we have projected we will receive revenues from sales of this product beginning in 2016. The AG200-15 product requires a process step that we have not yet
incorporated into commercial production, which involves the laser-etching of label information on each patch. In addition to requiring an additional Phase&nbsp;3 clinical study, the FDA has
requested information relating to this laser-etching process to demonstrate that it does not adversely affect the performance of the patch. If this product is not approved and launched by mid-2016, or
at all, we will not realize our anticipated revenue growth for 2016. In addition, one of our three buildings in our manufacturing facility in Grand Rapids, Michigan has been built out for the
anticipated commercial production of AG200-15. Although some of the equipment used in that building may be repurposed for other uses with Agile's permission, it would be expensive and time consuming
to do so. If AG200-15 is not approved, our business and financial prospects will be significantly harmed. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We are dependent on numerous third parties in our supply chain for the commercial supply of our products, and if we fail to maintain our supply relationships with these
third parties, develop new relationships with other third parties or suffer disruptions in supply, we may be unable to continue to commercialize our products or to develop our product candidates.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We rely on a number of third parties for the supply of active ingredients and other raw materials for our products and the clinical supply of our
product candidates. Our ability to commercially supply our products and to develop our product candidates depends, in part, on our ability to obtain successfully the APIs used in the products, in
accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. If we fail to develop and maintain supply relationships with these third parties, we
may be unable to continue to commercialize our products, or develop any other product candidates or our MicroCor systems. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We
also rely on certain third parties as the current sole source of the materials they supply. Although many of these materials are produced in more than one location or are available from another
supplier, if any of these materials becomes unavailable to us for any reason, we likely would incur added costs and delays in identifying or qualifying replacement materials and there can be no
assurance that replacements would be available to us on acceptable terms, or at all. In certain cases we may be required to get regulatory approval to use alternative suppliers, and this process of
approval could delay production of our products or development of product candidates indefinitely. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
our third-party suppliers fail to deliver the required commercial quantities of sub-components and starting materials, on a timely basis and at commercially reasonable prices, and we are unable to
find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and on a timely basis, the continued commercialization
of our products and the development of our product candidates would be impeded, delayed, limited or prevented, which could harm our business, results of operations, financial condition and prospects. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>15</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> We face intense competition, in both our delivery systems and products, including from generic drug products, and if our competitors market or develop alternative treatments
that are approved more quickly or marketed more effectively than our product candidates or are demonstrated to be safer or more effective than our products, our commercial opportunities will be
reduced or eliminated.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary
therapeutics. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, drug delivery companies and academic and research
institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, experience in obtaining
regulatory approvals for drug product candidates and other resources than us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Many
pharmaceutical companies are developing transdermal drug delivery systems, including 3M, Johnson&nbsp;&amp; Johnson, Lohmann Therapies Systems, or LTS, Mylan, Hisamitsu, or Noven, and Actavis. In
the field of microneedle transdermal systems, other participants include 3M, Zosano, Theraject, Fujifilm and several academic institutions. For more information about the competition we face, see
"Business&#151;Competition." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
also face competition from third parties in obtaining allotments of fentanyl and other controlled substances under applicable annual quotas of the U.S. Drug Enforcement Administration, or DEA,
recruiting and retaining qualified personnel, establishing clinical trial sites and enrolling patients in clinical trials, and in identifying and acquiring or in-licensing new products and product
candidates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
competitors may develop products that are more effective, better tolerated, subject to fewer or less severe side effects, more useful, more widely prescribed or accepted, or less costly than ours.
For each product we commercialize, sales and marketing efficiency are likely to be significant competitive factors. We do not have internal sales or marketing departments, and there can be no
assurance that we can develop or contract out these capabilities in a manner that will be cost-efficient and competitive with the sales and marketing efforts of our competitors, especially since some
or all of those competitors could expend greater economic resources than we do and/or employ third-party sales and marketing channels. Such competition can lead to reduced market share for our
products and contribute to downward pressure in our pricing, which could harm our business, results of operations, financial condition and prospects. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is
inadequate.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The commercial use of our products and clinical use of our product candidates expose us to the risk of product liability claims. This risk exists even
if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with Fentanyl TDS and Clonidine TDS, or an applicable foreign
regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our
products or our product candidates could result in injury to a patient or even death. We have had 19 past legal proceedings related to Fentanyl TDS. Eighteen of the cases have been settled and
dismissed with prejudice, and one case is pending. The complaint for the one pending product liability suit did not state a specified amount of compensatory or exemplary damages. We have insurance
coverage up to $10&nbsp;million dollars with a maximum liability of $50,000 of out-of-pocket expense for this claim. We cannot offer any assurance that we will not face other product liability suits
in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Fentanyl
TDS is an opioid pain reliever that contains fentanyl, which is a regulated "controlled substance" under the Controlled Substances Act of 1970, or CSA, and could result in harm to patients
relating to the potent effects of the opioid drug and its potential for abuse. In addition, a liability claim may be brought against us even if our products or product candidates merely appear to have
caused an injury. Product </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>16</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>liability
claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products or product candidates,
among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual
outcome, product liability claims may result in:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the inability to commercialize our products or, if approved, our product
candidates; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>decreased demand for our products or, if approved, product candidates; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>impairment of our business reputation; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>product recall or withdrawal from the market; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>withdrawal of clinical trial participants; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs of related litigation; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>distraction of management's attention from our primary business; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>substantial monetary awards to patients or other claimants; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>loss of revenues. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
have obtained product liability insurance coverage for commercial product sales and clinical trials with a $10&nbsp;million per occurrence and a $10&nbsp;million annual aggregate coverage
limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance
coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us
against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of our products, approval of other product candidates, or
otherwise, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits
based on drugs that had unanticipated side effects, including side effects that are less severe than those of our products and our product candidates. A successful product liability claim or series of
claims brought against us could cause our stock price to decline
and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, results of operations, financial condition and prospects. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> We have been subject to product recalls in the past, and may be subject to additional product recalls in the future that could harm our reputation and could negatively
affect our business.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We may be subject to product recalls, withdrawals or seizures if any of the products we formulate, manufacture or sell fail to meet their
specifications or are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacture, labeling, promotion, sale, or distribution of any of our
products. In 2008 and 2010, Actavis voluntarily recalled certain lots of Fentanyl TDS, due to imperfections in our manufacturing processes, including an issue that resulted in some patches that may
have released the active ingredient at a faster rate than the rate provided in the product specifications. Any similar recall, withdrawal or seizure in the future, particularly if they involve our own
proprietary product candidates, could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our products. In addition, a recall, withdrawal or seizure of
any of our products would require significant management attention, would likely result in substantial and unexpected expenditures, and would harm our business, financial condition, and results of
operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>17</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> If we or our partners are unable to achieve and maintain adequate levels of coverage and reimbursement for our products, or any future products we may seek to commercialize,
their commercial success may be severely hindered.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For our products that are available only by prescription, successful sales by our partners depend on the availability of adequate coverage and
reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated
with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product
acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or
subsequently become available. If our products do not demonstrate superior efficacy profiles, they may not qualify for coverage and reimbursement. Even if we obtain coverage for a given product, the
resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, the market for our products will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and
reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a
particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no
uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As
a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor
separately, with no assurance that coverage and adequate reimbursement will be obtained. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Further,
we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and
reimbursement for our products or any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets,
which could harm our business, results of operations, financial condition and prospects. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our partners depend on wholesale pharmaceutical distributors for retail distribution of our products and, if our partners lose any of their significant wholesale
pharmaceutical distributors, our business could be harmed.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The majority of our partners' sales are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other
customers. The loss of any of these wholesale pharmaceutical distributors' accounts or a material reduction in their purchases could have a material adverse effect on our business, results of
operations, financial condition and prospects. In addition, these wholesale customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This
distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a
significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. We cannot assure you that
we or our partners can manage these pricing pressures or that wholesaler purchases will not fluctuate unexpectedly from period to period. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>18</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Our results of operations may be adversely affected by demand fluctuations outside our ability to control or influence.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In general, our marketing partners are required to provide us with 12-month rolling forecasts of their demand on a quarterly basis, and are also
required to place firm purchase orders with us based on the near-term portion of those forecasts. If wholesaler or market demand for these products is lower than forecasted, our marketing partners or
their wholesaler customers may accumulate excess inventory. Additionally, our marketing partners may price our products at levels that result in lost contract sales to their wholesaler customers. If
such conditions persist, our marketing partners may sharply reduce subsequent purchase orders for a sustained period of time until such excess inventory is consumed, if ever. Significant and unplanned
reductions in our manufacturing orders have occurred in the past and our results of operations were harmed. If such reductions occur again in the future, our revenues will be negatively impacted, we
will lose our economies of scale, and our revenues may be insufficient to fully absorb our overhead costs, which could result in larger net losses. Conversely, if our marketing partners promote
significantly increased demand, we may not be able to manufacture such unplanned increases in a timely manner, especially following prolonged periods of reduced demand. As we have no control over
these factors, including our marketing partners' decisions on pricing, our purchase orders could fluctuate significantly from quarter to quarter, and the results of our operations could fluctuate
accordingly. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our MicroCor technology has not been incorporated into a therapeutic commercial product and is still at a relatively early stage of development.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our MicroCor technology, utilizing proprietary microneedle arrays, has not been incorporated into a therapeutic commercial product and is still at a
relatively early stage of development. We use this technology in several of our therapeutic candidates. Although we have conducted Phase&nbsp;1 clinical trials for our product candidate MicroCor
hPTH(1-34), additional studies are required for this product candidate and there is no guarantee that future clinical trials will prove the technology is effective or does not have harmful side
effects. Any failures or setbacks in utilizing our MicroCor technology, including adverse effects resulting from the use of this technology in humans, could have a detrimental impact on our internal
product candidate pipeline and our ability to enter into new corporate collaborations regarding this technology, which would harm our business and financial position. As of yet, no microneedle
technology has been approved by the FDA for commercial sale. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, our MicroCor product candidates have been manufactured in small quantities for preclinical studies and early stage clinical trials. As we prepare for later stage clinical trials and
potential commercialization, we will need to take steps to increase the scale of production of our MicroCor product candidates. In order to conduct larger or late-stage scale clinical trials for a
MicroCor product candidate and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, we will need to manufacture it
in larger quantities. We may not be able to increase successfully the manufacturing capacity for any of such product candidates in a timely or cost-effective manner or at all. Significant scale-up of
manufacturing may require additional processes, technologies and validation studies, which are costly, may not be successful and which the FDA must review and approve. In addition, quality issues may
arise during those
scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging
process, or during shipping and storage of the finished product or active pharmaceutical ingredients. If we are unable to successfully scale-up the manufacture of any of our MicroCor product
candidates in sufficient quality and quantity, the development of that product candidate and regulatory approval or commercial launch for any resulting drug products may be delayed, or there may be a
shortage in supply, either of which could significantly harm our business. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
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<P style="font-family:arial;"><FONT SIZE=2><B> If we are not able to establish collaborations, we may have to alter our development and commercialization plans.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our
product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, although
we have initiated Phase&nbsp;I clinical trials through self-funding, we will need to find a partner or partners for the commercialization of MicroCor hPTH(1-34) if we are to effectively compete in
the target primary care market against generic medicines and drug delivery systems. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the
collaborator's resources and experience, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design
or results of clinical trials, the likelihood of approval by the FDA or other regulatory authorities, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there
is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or
technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be
restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In
addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or
delay its development program or one or more of our other development programs, delay its potential commercialization, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to
increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If
we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> The report of our independent registered public accounting firm on our 2013 financial statements contains a going concern modification, and we will need additional financing
to execute our business plan, to fund our operations and to continue as a going concern.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern
without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for fiscal 2013 with respect to
this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time
obtaining financing. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be
unable to continue in existence. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>20</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing
any growth.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our management, personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. As a public
company, we will need to further expand our scientific, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization
activities. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
need to manage our operations, growth and various projects effectively requires that we:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>continue to improve our operational, financial, management and regulatory
compliance controls and reporting systems and procedures, including the implementation of new enterprise resource management software; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>attract and retain sufficient numbers of talented employees; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>manage our commercialization activities for our products and product
candidates effectively and in a cost-effective manner; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>manage our relationship with our partners related to the commercialization
of our products and product candidates; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>manage our clinical trials effectively; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>manage our internal manufacturing operations effectively and in a
cost-effective manner while increasing production capabilities for our current product candidates to commercial levels; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>manage our development efforts effectively while carrying out our
contractual obligations to partners and other third parties. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to preclinical and
clinical testing. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. Because we rely on consultants for certain functions of our
business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no
assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively
expand our organization by hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks necessary to execute effectively on our planned research,
development and commercialization activities and, accordingly, might not achieve our research, development and commercialization goals. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully commercialize our products, develop our product candidates
or otherwise implement our business plan.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified managerial,
scientific, medical and other personnel. We are highly dependent on our management and scientific personnel, including our President and Chief Executive Officer, Peter Staple, our Chief Financial
Officer, Robert Breuil, and our Chief Technology Officer and Vice President, Research and Development, Parminder Singh. The loss of the services of any of these individuals could impede, delay or
prevent the continuing commercialization of our products and the development of our product candidates and could negatively impact our ability to successfully implement our business plan. If we lose
the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We do not maintain "key man"
insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can
be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide stock options
that vest over time. The value </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>to
employees of stock options that vest over time will be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract offers
from other companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and
other businesses, particularly in the San Francisco Bay area where we are headquartered. We could have difficulty attracting experienced personnel to our company and may be required to expend
significant financial resources in our employee recruitment and retention efforts. We do not currently have a chief medical officer, and we cannot assure you that, if we require such a position to be
filled, we will be able to hire a qualified candidate for this position. Many of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other
resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. If we are not able to
attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business
objectives. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in
developing products or technologies that may compete with ours. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>From time to time we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of
products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships,
joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term
expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions
entail numerous potential operational and financial risks, including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>exposure to unknown liabilities; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>disruption of our business and diversion of our management's time and
attention in order to develop acquired products, product candidates or technologies; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>incurrence of substantial debt or dilutive issuances of equity securities to
pay for acquisitions; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>higher-than-expected acquisition and integration costs; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>write-downs of assets or impairment charges; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>increased amortization expenses; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>difficulty and cost in combining the operations and personnel of any
acquired businesses with our operations and personnel; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>impairment of relationships with key suppliers, partners or customers of any
acquired businesses due to changes in management and ownership; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>inability to retain key employees of any acquired businesses. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Accordingly,
there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business,
results of operations, financial condition and prospects. We have no current plan, commitment or obligation to enter into any transaction described above. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>22</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Our business involves the use of hazardous materials and we and our third-party suppliers must comply with environmental laws and regulations, which can be expensive and
restrict how we do business.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our research and development activities and our manufacturing activities involve the controlled storage, use and disposal of hazardous materials owned
by us, including the components of our products and product candidates and other hazardous compounds. We are subject to laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our facilities pending use and disposal and we dispose of
certain materials directly through incineration. We cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development
efforts and business operations, injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste products. Although we believe that the safety procedures we utilize for handling and disposing of these materials generally comply with the
standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or
injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste
insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or
contamination. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our employees, partners, independent contractors, principal investigators, consultants, vendors and contract research organizations may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are exposed to the risk that our employees, partners, independent contractors, principal investigators, consultants, vendors and contract research
organizations, or CROs, may engage in fraudulent or other illegal activity. Misconduct by these employees could include intentional, reckless and/or negligent conduct or unauthorized activity that
violates: (1)&nbsp;FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; (2)&nbsp;manufacturing standards; (3)&nbsp;federal and
state healthcare fraud and abuse laws and regulations; or (4)&nbsp;laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also
involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our
reputation. We have dismissed employees in the past for improper handling and theft of our product components, and although we reported their actions to all relevant authorities, any similar incidents
or any other conduct that leads to an employee receiving an FDA debarment could result in a loss of business from our partners and severe reputational harm. In connection with the consummation of this
offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on
our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our
business and our results of operations. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> We may be adversely affected by natural disasters or other events that disrupt our business operations, and our business continuity and disaster recovery plans may not
adequately protect us from a serious disaster.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our corporate headquarters are located in Menlo Park, California, near major earthquake and fire zones. Our manufacturing facilities are in Grand
Rapids, Michigan, where other natural disasters or similar events, like blizzards, tornadoes, fires or explosions or large-scale accidents or power outages, could severely disrupt our operations, and
have a material adverse effect on our business, results of operations, financial condition and prospects. If a disaster, power outage or other event occurred that prevented us from using all or a
significant portion of our headquarters or our Grand Rapids facility, that damaged critical infrastructure, such as enterprise financial systems or manufacturing resource planning and enterprise
quality systems, or that otherwise disrupted operations at either location, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our business and operations would suffer in the event of failures in our internal computer systems.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such
material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing
activities, development programs and our business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical trials could result in delays in
our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to,
our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further commercialization and development of our products and product
candidates could be delayed. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> In connection with the reporting of our financial condition and results of operations, we are required to make estimates and judgments which involve uncertainties, and any
significant differences between our estimates and actual results could have an adverse impact on our financial position, results of operations and cash flows.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. For example, we estimate annual market revenues based on patient
prescriptions using an analysis of third-party information and third-party market research data. If this third-party data underestimates or overestimates actual revenues for a given period,
adjustments to revenues may be necessary in future periods. Any significant differences between our actual results and our estimates and assumptions could negatively impact our financial position,
results of operations and cash flows. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Changes in accounting standards and their interpretations could adversely affect our operating results.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>GAAP are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, or
AICPA, the SEC, and various other bodies that promulgate and interpret appropriate accounting principles. These principles and related implementation guidelines and interpretations can be highly
complex and involve subjective judgments. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of
transactions completed before the announcement of a change. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>24</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Risks Related to Our Financial Position and Capital Requirements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We have had significant and increasing operating expenses and may require additional funding.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for fiscal 2013 with respect to this uncertainty. Our ability to continue as a going
concern will require us to obtain additional financing to fund our operations. We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest
thereon and our existing line of credit, will be sufficient to fund our operations through at least the next 12&nbsp;months. We have based these estimates, however, on assumptions that may prove to
be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need to raise additional capital following this offering to fund our operations and
continue to support our planned research and development and commercialization activities. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the timing and amount of revenues from sales of our approved products and
any subsequently approved product candidates that are commercialized; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the size and cost of our commercial infrastructure; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the timing of FDA approval of our product candidates, if at all; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the timing, rate of progress and cost of any future clinical trials and
other product development activities for our product candidates that we may develop, in-license or acquire; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs associated with marketing, manufacturing and distributing any
subsequently approved product candidates; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs and timing of completion of any additional outsourced commercial
manufacturing supply arrangements that we may establish; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights associated with our products and our product candidates; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs associated with prosecuting or defending any litigation that we are or
may become involved in and any damages payable by us that result from such litigation; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs associated with any product recall that could occur; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>costs of operating as a public company; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the effect of competing technological and market developments; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our ability to acquire or in-license products and product candidates,
technologies or businesses; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>personnel, facilities and equipment requirements; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the terms and timing of any additional collaborative, licensing,
co-promotion or other arrangements that we may establish. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional capital by issuing equity securities or convertible debt, your
ownership will be diluted. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional
debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs
or commercialization efforts, or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would
otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available. In addition, our ability to achieve profitability or to respond to competitive
pressures would be significantly limited. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>25</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our
industry and prevent us from meeting our obligations.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of December&nbsp;31, 2013, the amount of our total indebtedness was approximately $65.9&nbsp;million, of which we borrowed $36.7&nbsp;million
pursuant to our term loan agreement with Capital Royalty, and the remainder was primarily amounts outstanding under convertible or subordinated notes. As of December&nbsp;31, 2013, no principal
funds remained available to us for borrowing under the Capital Royalty term loan agreement. We are required to make significant payments to Capital Royalty beginning on September&nbsp;30, 2016, as
described in more detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
outstanding debt and related debt service obligations could have important adverse consequences to us, including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>heightening our vulnerability to downturns in our business or our industry
or the general economy and restricting us from making improvements or acquisitions, or exploring business opportunities; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>requiring a significant portion of our available cash to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability to use our available cash to fund our operations, capital expenditures and future business opportunities; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>limiting our ability to adjust to changing market conditions and placing us
at a competitive disadvantage compared to our competitors who have greater capital resources; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>subjecting us to financial and other restrictive covenants in our debt
instruments, the failure with which to comply could result in an event of default under the applicable debt instrument that allows the lender to demand immediate repayment of the related debt. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>If
our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay product development, sales and marketing, capital and other
expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt
service obligations. This risk is increased by the fact that borrowings under our revolving credit facility with Silicon Valley Bank, or our SVB line, bear interest at a variable rates, exposing us to
the risk that the amount of cash required to pay interest will increase to the extent that market interest rates increase. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> The terms of our bank line of credit and term loan agreement place restrictions on our operating and financial flexibility.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During any such times when credit remains available to us under the SVB line, or we have outstanding borrowings under the term loan agreement with
Capital Royalty, we will be required to maintain certain deposits and minimum balances as well as be prohibited from engaging in significant business transactions without the prior consent of Silicon
Valley Bank and Capital Royalty, respectively, including a change of control or the acquisition by us of another company, or engaging in new business activities which are substantially different from
our current business activities. These restrictions could significantly limit our ability to respond to changes in our business or competitive activities or take advantage of business opportunities
that may create value for our stockholders. In addition, in the event of a default under either of these arrangements, our
repayment obligations may be accelerated in full. In the event that we do not have sufficient capital to repay the amounts then owed, we may be required to renegotiate such arrangements on terms less
favorable to us, pursue strategic alternatives, including sale of our company or our significant assets, or to cease operations. Furthermore, if we raise any additional debt financing, the terms of
such additional debt could further restrict our operating and financial flexibility. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Our ability to utilize our net operating loss carryforwards, or NOLs, and research and development income tax credit carryforwards may be limited.  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>As of September&nbsp;30, 2013, we had NOLs for federal and state income tax purposes of $63.2&nbsp;million and $12.0&nbsp;million, respectively.
If not utilized, these NOLs will expire beginning in 2026 and 2017 for federal and state income purposes, respectively. Under Section&nbsp;382 of the Internal Revenue Code of 1986, as amended, if a
corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, the corporation's ability to use its pre-change
net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that, with our initial public
offering and other transactions that have occurred over the past three years, we may have triggered an "ownership change" limitation. We may also experience ownership changes in the future as a result
of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations,
which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which
could accelerate or permanently increase state taxes owed. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below
expectations or our guidance.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating
results. From time to time, we enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments, and we expect that amounts
earned from our collaboration agreements will continue to be an important source of our revenues. Accordingly, our revenues will depend on development funding and the achievement of development and
clinical milestones under our existing collaboration arrangements, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and
milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. For example, our
product revenues from Clonidine
TDS in fiscal 2013 were higher than historic levels, primarily as a result of Teva's increased market share resulting from a major competitor's diminished ability to supply its product for seven
months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be significantly lower than they were during fiscal 2013, as this competitor resumed supply at historic
levels. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors,
and recognize the cost as an expense over the employee's requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock
price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many
of which are outside of our control and may be difficult to predict, including the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the timing and cost of, and level of investment in, research and development
activities relating to our product candidates, which may change from time to time; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the cost of manufacturing our product candidates, which may vary depending
on FDA guidelines and requirements, and the quantity of production; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>expenditures that we will or may incur to acquire or develop additional
product candidates and technologies; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the level of demand for our product candidates, should they receive
approval, which may vary significantly; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>future accounting pronouncements or changes in our accounting policies; </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the timing and success or failure of clinical studies for our product
candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the United States and
elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international
economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be
adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. Additionally, although we market our products
primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Risks Related to Regulation of our Products and Product Candidates  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our currently marketed products, and any of our product candidates that we or our partners commercialize, will be subject to ongoing and continued regulatory review, which
may result in significant expense and limit our or our partners' ability to commercialize such products.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Even after we achieve U.S. regulatory approval for a product, or after we or our partners commercialize an FDA-regulated product that does not require
premarket approval (such as our consumer teeth whitening products), we will be subject to continued regulatory review and compliance obligations. For example, with respect to our drug products, the
FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A drug product's approval may contain requirements for
potentially costly post-approval studies and surveillance, including Phase&nbsp;4 clinical trials, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA
obligations and continued regulatory review with respect to the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping
for our products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing
Practice, or cGMP, requirements and with Good Clinical Practice, or GCP, and good laboratory practice, or GLP, requirements, which are regulations and guidelines enforced by the
FDA for all of our products in clinical and pre-clinical development, and for any clinical trials that we conduct post-approval. To the extent that a product is approved for sale in other countries,
we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
the case of Fentanyl TDS and any of our product candidates containing controlled substances, we will also be subject to ongoing DEA regulatory obligations, including, among other things, annual
registration renewal, security, recordkeeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations, including
the Quality System Regulation, or QSR, requirements for medical device components of our products or similar requirements, if applicable. If we or a regulatory agency discovers previously unknown
problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may
impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of
manufacturing. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For
instance, in connection with the recall of selected lots of fentanyl patches we manufactured for Actavis in 2008, the FDA inspected our manufacturing facilities and issued a Form&nbsp;483
describing certain </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>deficiencies
in our manufacturing and quality systems. We submitted a response to the Form&nbsp;483, and held a regulatory meeting with the FDA District Office in October 2008 to review actions we
took relating to such observations, and resumed manufacture of Fentanyl TDS in September 2008 with first commercial shipments beginning December 2008. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
FDA conducted another inspection of our production facility in March 2009 as part of a general assignment by the FDA's Center for Drug Evaluation and Research to inspect the producers of liquid
reservoir transdermal patches. Transdermal fentanyl products, including reservoir-format patches, have been the subject of significant regulatory scrutiny. Following this inspection, the FDA issued a
Form&nbsp;483 with nine observations. We submitted a response to these observations and the FDA subsequently closed out the inspection and issued us an Establishment Inspection Report, or EIR. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
response to a fentanyl product recall in October 2010 by our partner Actavis, the FDA inspected our facility and issued a Form&nbsp;483 with three observations. The FDA again inspected our
production facility in November 2011. Following the inspection, the FDA issued a Form&nbsp;483 with nine observations. We submitted a reply to these observations and the FDA subsequently closed out
the inspection and issued us an EIR. The FDA has subsequently inspected our facilities two times, most recently in January and February 2013, when it issued a Form&nbsp;483 identifying three
observations, and that inspection has been closed out with the issuance of an EIR in March 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we, our products or product candidates or the manufacturing facilities for our products or product candidates fail to comply with applicable regulatory requirements, a regulatory agency
may:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>impose restrictions on the marketing or manufacturing of the product,
suspend or withdraw product approvals or revoke necessary licenses; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>issue warning letters, show cause notices or untitled letters describing
alleged violations, which may be publicly available; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>commence criminal investigations and prosecutions; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>impose injunctions, suspensions or revocations of necessary approvals or
other licenses; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>impose fines or other civil or criminal penalties; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>suspend any ongoing clinical trials; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>deny or reduce quota allotments for the raw material for commercial
production of our controlled substance products; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>delay or refuse to approve pending applications or supplements to approved
applications filed by us; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>refuse to permit drugs or precursor chemicals to be imported or exported to
or from the United States; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>suspend or impose restrictions on operations, including costly new
manufacturing requirements; or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>seize or detain products or require us to initiate a product recall. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, our or our partners' product labeling, advertising and promotion are subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims
that may be made about prescription drug products. In particular, a drug product may not be promoted for uses that are not approved by the FDA as reflected in the product's approved labeling, although
the FDA does not regulate the prescribing practices of physicians. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that
is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
FDA's regulations, policies or guidance may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates
or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative
action, either in the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>29</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>United
States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products, which would adversely affect our ability to generate revenues
and achieve or maintain profitability. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Some of our products or product candidates contain controlled substances, the making, use, sale, importation and distribution of which are subject to regulation by state,
federal and foreign law enforcement and other regulatory agencies.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Fentanyl TDS and certain of our other drug product candidates contain active ingredients which are classified as controlled substances, which are
subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Controlled substances are regulated under the Controlled
Substances Act of 1970, or CSA, and the regulations of the Drug Enforcement Administration, or DEA. The DEA regulates controlled substances as Schedule&nbsp;I, II, III, IV or V substances.
Schedule&nbsp;I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule&nbsp;II, III, IV
or V, with Schedule&nbsp;II substances considered to present the highest risk of abuse and Schedule&nbsp;V substances the lowest relative risk of abuse among such substances. Fentanyl TDS is
regulated by the DEA as a Schedule&nbsp;II controlled substance. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Various
states also independently regulate controlled substances. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately
schedule drugs as well. While some states automatically schedule&nbsp;a drug when the DEA does so, in other states there must be rulemaking or a legislative action. Adverse scheduling could impair
the commercial attractiveness of such product. We or our collaborators must also obtain separate state registrations in order to be able to obtain, handle and distribute controlled substances for
clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise
arising under federal law. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For
our products or product candidates containing controlled substances, we and our partners, suppliers, contractors and distributors are required to obtain and maintain applicable registrations from
state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation, exportation and
distribution of controlled substances. These regulations are extensive and include regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas,
record keeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of drug candidates
including controlled substances. Failure to obtain and maintain required registrations or comply with any applicable regulations could delay or preclude us from developing and commercializing our
products containing controlled substances and subject us to enforcement action. In addition, because of their restrictive nature, these regulations could limit our commercialization of our
pharmaceutical systems containing controlled substances. In particular, among other things, there is a risk that these regulations may interfere with the supply of the drugs used in our clinical
trials, and in the future, our ability to produce and distribute our products in the volume needed to meet commercial demand. The DEA may seek civil penalties, refuse to renew necessary registrations
or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceeding. Because of their restrictive nature, these regulations could limit
commercialization of any of our product candidates that are classified as controlled substances. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>30</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> In addition to the level of commercial success of our approved products, our future growth is also dependent on our ability to successfully develop a pipeline of product
candidates, and we cannot give any assurance that any of our product candidates will receive regulatory approval or that any approved products will be successfully commercialized.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates. We do not have internal new drug
discovery capabilities, and our primary focus is on developing improved transdermal drug delivery systems by reforumulating FDA approved drugs using our proprietary technologies. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Our
near-term growth is dependent on bringing the Agile AG200-15 transdermal contraceptive patch to market in 2016. Our collaboration partner Agile has conducted Phase&nbsp;3 clinical studies and
filed an NDA with the FDA for AG200-15 in April 2012. The FDA issued a Complete Response Letter in February 2013 identifying certain issues, including a request for additional clinical data, which
must be addressed before approval can be granted. We cannot assure you that Agile will be able to obtain regulatory approval for the AG200-15 product, which would limit our near-term growth prospects,
and would create uncertainty around the value and usefulness of our AG200-15 manufacturing facility and equipment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have two other partnered product candidates that are the subject of ANDAs submitted by our partners to the FDA, and three product candidates in clinical development. The research, testing,
manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign
countries. Obtaining approval of an NDA or ANDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons. For example our product candidates could fail to receive regulatory approval for many reasons, including the
following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may disagree with the design or implementation of clinical trials; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may not deem a product candidate safe and effective for its proposed
indication, or may deem a product's safety risks to outweigh its clinical or other benefits; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may not find the data from pre-clinical studies and clinical trials
sufficient to support approval, or the results of clinical trials may not meet the level of statistical significance required by the FDA for approval; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may disagree with our or our partners' interpretation of data from
pre-clinical studies or clinical trials; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the data collected from clinical trials may not be sufficient to support the
submission of an NDA or ANDA; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may require additional pre-clinical studies or clinical trials; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may not approve of our manufacturing processes and facilities; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may change its approval policies or adopt new regulations. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Any
of our product candidates may fail to achieve their specified endpoints in clinical trials. Furthermore, product candidates may not be approved even if they achieve their specified endpoints in
clinical trials. The FDA may disagree with the design of clinical trials and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and
commented on the design for clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we or our partners request, or may grant approval contingent on the
performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we or our partners believe are necessary or desirable for the successful
commercialization of our product candidates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we are unable to expand our pipeline and obtain regulatory approval for our product candidates on the timelines we anticipate, we will not be able to execute our business strategy effectively and
our ability to substantially grow our revenues will be limited, which would harm our long-term business, results of operations, financial condition and prospects. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>31</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> We manufacture our products internally and may encounter manufacturing failures that could impede or delay commercial production of our current products or our product
candidates, if approved, or the preclinical and clinical development or regulatory approval of our product candidates.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Any failure in our internal manufacturing operations could cause us to be unable to meet the demand for our products and lose potential revenues,
delay the preclinical and clinical development or regulatory approval of our product candidates, and harm our reputation. Our internal manufacturing operations may encounter difficulties involving,
among other things, production yields, regulatory compliance, quality control and quality assurance, obtaining DEA quotas which allow us to produce in the quantities needed to execute on our business
plan, and shortages of qualified personnel. Our ability to commercially supply our products, and regulatory approval of our product candidates, could be impeded, delayed, limited or denied if the FDA
does not maintain the approval of our manufacturing processes and facilities. In addition, we have no experience producing our MicroCor system in commercial quantities. We have experienced product
recalls in the past and we may encounter difficulties when we attempt to manufacture commercial quantities of our product candidates in the quantities needed for our preclinical studies or clinical
trials. Such difficulties could result in commercial supply shortfalls of our products, delay in the commercial launch of any of our product candidates, if approved, delays in our preclinical studies,
clinical trials and regulatory submissions, or the recall or withdrawal of our products from the market. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. In addition, we must obtain and maintain necessary
DEA and state registrations, and must establish and maintain processes to assure compliance with DEA and state requirements governing, among other things, the storage, handling, security,
recordkeeping and reporting for controlled substances. We must also apply for and receive a quota for fentanyl for our Fentanyl TDS product. Any failure to comply with these requirements may result in
penalties, including fines and civil penalties, suspension of production, suspension or delay in product approvals, product seizure or recall, operating restrictions, criminal prosecutions, withdrawal
of product approvals or severe reputational harm, any of which could adversely affect our business. If the safety of any product or product candidate or component is compromised due to a failure to
adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable
for injuries sustained as a result. Any of these factors could cause a delay or termination of commercialization, preclinical studies and clinical trials, regulatory submissions or approvals of our
products or product candidates, entail higher costs or result in our being unable to effectively commercialize our approved products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Clinical drug development for our product candidates is expensive, time consuming, uncertain and susceptible to change, delay or termination.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Clinical drug development for our product candidates is very expensive, time-consuming and difficult to design and implement. Our product candidates
are in varying stages of development ranging from pre-clinical feasibility studies to registration. We estimate that clinical trials for these product candidates, if and when initiated, will continue
for several years and may take significantly longer than expected to complete. In addition, we, our partners, the FDA, an Institutional Review Board, or IRB, or other regulatory authorities, including
state and local agencies, may suspend, delay or terminate our clinical trials at any time, for various reasons, including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>obtaining IRB approval of each site; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>recruiting suitable patients to participate in a trial; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>lack of effectiveness of any product candidate during clinical trials; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>discovery of serious or unexpected toxicities or side effects experienced by
study participants or other safety issues; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>slower than expected rates of subject recruitment and enrollment rates in
clinical trials; </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>difficulty in retaining subjects who have initiated a clinical trial but may
withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>delays in or inability to manufacture or obtain sufficient quantities of
materials for use in clinical trials; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>inadequacy of or changes in our manufacturing process or the product
formulation; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>delays in obtaining regulatory authorization to commence a study, or
"clinical holds" or delays requiring suspension or termination of a study by a regulatory agency, such as the FDA, before or after a study is commenced; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>changes in applicable regulatory policies and regulations; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>delays or failure in reaching agreement on acceptable terms in clinical
trial contracts or protocols with prospective contract research organizations, or CROs, and clinical trial sites; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>uncertainty regarding proper dosing; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>unfavorable results from ongoing clinical trials and preclinical studies; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>failure of our CROs or other third-party contractors to comply with
contractual and regulatory requirements or to perform their services in a timely or acceptable manner; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>failure by us, our employees, our collaboration partners or their employees,
or our CROs or their employees to comply with applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for
controlled substances; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>scheduling conflicts with participating clinicians and clinical
institutions; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>failure to design appropriate clinical trial protocols; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>insufficient data to support regulatory approval; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>inability or unwillingness of medical investigators to follow our clinical
protocols; or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>difficulty in maintaining contact with subjects during or after treatment,
which may result in incomplete data. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Generally,
there is a high rate of failure for drug candidates proceeding through clinical trials. We or our partners may suffer significant setbacks in our clinical trials similar to the experience
of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even if we view the results of a clinical trial to
be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. Even after the completion of Phase&nbsp;3 clinical studies, we may have to address additional
issues raised by the FDA in response to the NDA or ANDA filed by us or our partners, such as the issues with the Agile contraceptive patch. In the event that we or our partners abandon or are delayed
in the clinical development efforts related to our product candidates, we may not be able to execute on our business plan effectively, we may not be able to become profitable, our reputation in the
industry and in the investment community could be significantly damaged and our stock price could decrease significantly. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We have in the past relied and expect to continue to rely on third parties to conduct and oversee our clinical trials. If these third parties do not meet our deadlines or
otherwise conduct the trials as required we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials. For example, we contracted
with Nucleus Network in Australia to conduct the Phase&nbsp;1 clinical trials for both our MicroCor hPTH(1-34) and the Corplex Tamsulosin products. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We
also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory
requirements, including the FDA's good clinical practice regulations and state regulations governing the handling, storage, security and </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>recordkeeping
for controlled substances. These CROs and third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical
trials. We rely heavily on these parties for the execution of our clinical and preclinical studies, and control only certain aspects of their activities. We and our CROs and other third party
contractors are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in
clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to
comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional
clinical trials before approving our or our partners' marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that
any of our clinical trials complies with GCP requirements. In addition, our clinical trials must generally be conducted with product produced under cGMP regulations. Our failure to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical
trial sites, or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients
enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials
may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We have conducted and may in the future conduct clinical trials for our products or product candidates outside the United States and the FDA may not accept data from such
trials.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States. For example, our CRO conducted
the Phase&nbsp;1 clinical trials for both our MicroCor hPTH (1-34) and the Corplex Tamsulosin products in Australia. Although the FDA may accept data from clinical trials conducted outside the
United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the study must be conducted in accordance with GCP requirements and the FDA must be able to
validate the data from the study through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing
approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the
studies were performed by clinical investigators of recognized competence; and (3)&nbsp;the data is considered valid without the need for an on-site inspection by FDA or, if FDA considers such an
inspection to be necessary, FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such studies would be subject to the applicable local laws of the
foreign jurisdictions where the studies are conducted. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept any such data,
it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> If the FDA does not conclude that certain of our product candidates satisfy the requirements under Section&nbsp;505(b)(2)of the Federal Food Drug and Cosmetics Act, or
Section&nbsp;505(b)(2), or if the requirements for such product candidates under Section&nbsp;505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take
significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We and our collaboration partners are developing several proprietary product candidates, for which we and our partners intend to seek FDA approval
through the Section&nbsp;505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section&nbsp;505(b)(2) to the
Federal Food, Drug and Cosmetic Act, or FDCA. Section&nbsp;505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not
conducted by or for the applicant, and for which the applicant has not received a right of reference, which could expedite the development program for our product candidates by potentially decreasing
the amount of clinical data that we or our partners would need to generate in order to obtain FDA approval. If the FDA does not allow us or our partners to pursue the Section&nbsp;505(b)(2)
regulatory pathway as anticipated, we or our partners may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If
this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely
substantially increase. Moreover, inability to pursue the Section&nbsp;505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product
candidates, which would likely harm our competitive position and prospects. Even if we or our partners are allowed to pursue the Section&nbsp;505(b)(2) regulatory pathway, we cannot assure you that
our product candidates will receive the requisite approvals for commercialization. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, notwithstanding the approval of a number of products by the FDA under Section&nbsp;505(b)(2) over the last few years, certain competitors and others have objected to the FDA's
interpretation of Section&nbsp;505(b)(2). If the FDA's interpretation of Section&nbsp;505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices,
which could delay or even prevent the FDA from approving any NDA that we or our partners submit under Section&nbsp;505(b)(2). In addition, the pharmaceutical industry is highly competitive, and
Section&nbsp;505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section&nbsp;505(b)(2) NDA.
These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs or our partners' NDAs for up to 30&nbsp;months depending on the outcome of any litigation. It is
not uncommon for a manufacturer of an approved product to file&nbsp;a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing
products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially
delay approval while it considers and responds to the petition. In addition, even if we or our partners are able to utilize the Section&nbsp;505(b)(2) regulatory pathway, there is no guarantee this
would ultimately lead to faster product development or earlier approval. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Moreover,
even if our product candidates are approved under Section&nbsp;505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to
other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> The products that we make and develop may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in post-approval regulatory action.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Undesirable side effects caused by product candidates could cause us, or partners, or regulatory authorities to interrupt, delay or halt clinical
trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. Results of clinical trials could reveal a high and
unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our
partners, to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
labeling for our Fentanyl TDS product, which is common to all fentanyl transdermal products, includes warnings of serious adverse events relating to abuse potential, respiratory depression and
death, and risks relating to accidental exposure, drug interactions and exposure to heat. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Agile
has conducted two Phase&nbsp;3 clinical studies of the AG200-15 product. The safety population in these studies included patients who received at least one dose of either AG200-15 or a
combination oral contraceptive, or COC. In the combined safety population of Agile's Phase&nbsp;3 trials, there were a total of 22 serious treatment emergent adverse effects, or SAEs, of which 16
were from the AG200-15 group, three (0.2%) of which were considered to be possibly related to the study drug, consisting of drug overdose with Benadryl, uncontrollable nausea and vomiting, and left
subclavian deep vein thrombosis. Agile believes that AG200-15 will have a label consistent with all marketed hormonal contraceptive products, which include class labeling that warns of risks of
certain serious conditions, including venous and arterial blood clot events, such as heart attacks, thromboembolism and stroke, as well as liver tumors, gallbladder disease, and hypertension.
Regulatory authorities may require the inclusion of additional statements in the AG200-15 label, which may include a "black box" warning or contraindication. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Additionally,
if we or others identify undesirable side effects, or other previously unknown problems, caused by our products, other products with the same or related active ingredients or our, or our
partners, product candidates, after obtaining U.S. regulatory approval, a number of potentially significant negative consequences could result,
including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>regulatory authorities may withdraw their approval of the product; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>regulatory authorities may require a recall of the product or we or our
partners may voluntarily recall a product; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>regulatory authorities may require the addition of warnings in the product
label or narrowing of the indication in the product label; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>we may be required to create a Medication Guide outlining the risks of such
side effects for distribution to patients; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>we may be required to change the way the product is administered or modify
the product in some other way; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the FDA may require additional clinical trials or costly post-marketing
testing and surveillance to monitor the safety or efficacy of the product; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>we could be sued and held liable for harm caused to patients; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our reputation may suffer. </FONT></DD></DL>
</UL>
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<P style="font-family:arial;"><FONT SIZE=2>Any
of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product and could
substantially increase the costs of commercializing our products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system that could affect our future revenues and profitability and the future revenues and profitability of our partners. Federal and state lawmakers regularly propose and, at times, enact legislation
that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, President Obama
signed one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively, the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all
of which will impact existing government healthcare programs and will result in the development of new programs. The Affordable Care Act, among other things, (i)&nbsp;increased the minimum Medicaid
rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (ii)&nbsp;established
annual fees on manufacturers of certain branded prescription drugs and (iii)&nbsp;enacted a new Medicare Part&nbsp;D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered
under Medicare Part&nbsp;D. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August&nbsp;2, 2011, the Budget Control Act of 2011 among
other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for
the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare
payments to providers up to 2% per fiscal year, which went into effect on April&nbsp;1, 2013. On January&nbsp;2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,
which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers. We expect that additional state and federal healthcare reform measures will
be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products
once approved or additional pricing pressures. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial
condition.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and
abuse and patient privacy regulation by both the federal government and the states in which we or our partners conduct our business. The laws and regulations that may affect our ability to operate
include, without limitation:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the federal Anti-Kickback Statute, which prohibits, among other things, any
person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the
purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; </FONT></DD></DL>
</UL>
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<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the federal False Claims Act, which prohibits, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to
entities that provide coding and billing advice to customers; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>federal criminal laws that prohibit executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the federal physician sunshine requirements under the Affordable Care Act,
which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare&nbsp;&amp; Medicaid Services information related to payments and other
transfers of value made by certain manufacturers to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare
providers and their immediate family members; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the federal Health Insurance Portability and Accountability Act of 1996, as
amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, all of which govern the conduct of certain electronic healthcare transactions and
protect the security and privacy of protected health information; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>state law equivalents of each of the above federal laws, such as
anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply
with the pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to
healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and may not have the same effect, thus complicating compliance efforts. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under
one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amends the intent
requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In
addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false
or fraudulent claim for purposes of the False Claims Act. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Achieving
and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management's attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other
governmental laws or regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation in federal and state
healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Risks Related to Our Intellectual Property  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We may not be able to obtain and enforce patent rights or other intellectual property rights that cover our drug delivery systems and technologies that are of sufficient
breadth to prevent third parties from competing against us.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our success with respect to our drug delivery systems and technologies will depend in part on our ability to obtain and maintain patent protection in
both the United States and other countries, to preserve our trade secrets, and to prevent third parties from infringing upon our proprietary rights. Our ability to protect any of our approved
products, product candidates or drug delivery systems from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable
patents. Some of the drugs we use in our products have been approved for many years and therefore our ability to obtain any patent protection relating to the drug ingredients in our products may be
limited. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
patent portfolio related to our transdermal drug delivery systems and technologies includes patents and patent applications in the United States and foreign jurisdictions where we believe there is
a market opportunity for our products. The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any
ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors. Further, in countries where we do not
have granted patents, third parties may be able to make, use, or sell products identical to, or substantially similar to our products or product candidates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Due
to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is
uncertain and involves complex legal and factual questions. Accordingly, rights under any existing patents or any patents we might obtain or license may not provide us with sufficient protection for
our products and product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we
cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims
of these patents are or will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
MicroCor technology is new, although patents relating to microneedle technology were first filed in the 1990s. Although we believe that this technology includes certain inventions that are unique
and not duplicative of any prior art, we do not have outstanding issued patents covering our more recent developments in this technology and we are unsure of the patent protection that we will be
successful in obtaining, if any. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting
and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign
jurisdictions, our business prospects could be substantially harmed. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual
questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>The
degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to
gain or keep our competitive advantage. For example:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>we might not have been the first to invent or the first to file the
inventions covered by each of our pending patent applications and issued patents; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>others may independently develop similar or alternative technologies or
duplicate any of our technologies; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the patents of others may have an adverse effect on our business; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>any patents we obtain or our licensors' issued patents may not encompass
commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>any patents we obtain or our in-licensed issued patents may not be valid or
enforceable; or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>we may not develop additional proprietary technologies that are patentable. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>If
we or our licensors fail to prosecute, maintain and enforce patent protection for our drug delivery technologies, products or product candidates, our ability to develop and commercialize our
technologies, products or product candidates could be adversely affected and we might not be able to prevent competitors from making, using and selling competing technologies or products. This failure
to properly protect the intellectual property rights relating to our technologies, products or product candidates could have a material adverse effect on our business, financial condition and results
of operations. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Furthermore, in connection with our license agreement with P&amp;G, we granted to P&amp;G a broad
exclusive license for certain fields of use, excluding prescription drug products and foot care and wound care products, to our Corplex technology and related know-how. P&amp;G may sublicense its rights
under that license, including to another manufacturer, at any time, and we do not have any assurance that they will continue to use us as their development partner and manufacturer in the future. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Proprietary
trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how by entering into
confidentiality agreements with third parties, and proprietary information and invention agreements with certain employees, consultants and advisors, third parties may still obtain this information or
we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our licensees, partners and suppliers. There can be no assurance that binding
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered
by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or
unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> If we or our partners are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that
litigation could have a material adverse effect on our business.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our commercial success depends upon our ability and the ability of our partners to develop, manufacture, market and sell our products and product
candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third
parties exist in the fields relating to our products and product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may
assert that our drug delivery systems, technologies, products or product candidates infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents
cover various types of drugs, drug delivery systems or their methods of use. Thus, because of the large </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>40</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>number
of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our products, product candidates,
technologies or methods. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our products, product candidates or proprietary
technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign
jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that
others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file,
patent applications covering our products, product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents,
which could further require us to obtain rights to issued patents covering such technologies. If another party has filed an U.S. patent application on inventions similar to those owned or in-licensed
to us, we or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A
substantial portion of our partners' products and product candidates are generic versions of pre-existing brand name drugs and we may be exposed to, or threatened with, future litigation by third
parties having patent or other intellectual property rights alleging that our partners' products and/or product candidates and/or proprietary technologies infringe their intellectual property rights,
including litigation resulting from filing under Paragraph&nbsp;IV of the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug and this type of litigation
can be costly and could adversely affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our
commercialization partners are infringing the third party's patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will
order us or our partners to pay the other party damages
for having violated the other party's patents. In addition to facing litigation risks directly, we have agreed to indemnify several of our partners against claims of infringement caused by our
proprietary technologies, and we have entered or may enter into cost-sharing agreements with some of our partners that could require us to pay some of the costs of patent litigation brought against
those partners whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater
responsibility for infringement damages than would be assumed just on the basis of our technology. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>There
is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. To date, no litigation asserting
infringement claims has ever been brought against us. If a third party claims that we or our partners infringe its intellectual property rights, we may face a number of issues, including, but not
limited to:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>infringement and other intellectual property claims which, regardless of
merit, may be expensive and time-consuming to litigate and may divert our management's attention from our core business; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>substantial damages for infringement, which we may have to pay if a court
decides that the product or technology at issue infringes or violates the third party's rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and
the patent owner's attorneys' fees; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a court prohibiting us from selling or licensing the product or using the
technology unless the third party licenses its intellectual property rights to us, which it is not required to do; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>if a license is available from a third party, we may have to pay substantial
royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products or technologies; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>redesigning our products or processes so they do not infringe, which may not
be possible or may require substantial monetary expenditures and time. </FONT></DD></DL>
</UL>
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<P style="font-family:arial;"><FONT SIZE=2>Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we or our partners can because they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, results of operations,
financial condition and prospects. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their other clients
or former employers.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our products and product candidates,
many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or
potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their
former employers or their former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend
against any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably
by investors and other third parties, and may potentially result in an unfavorable outcome. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Risks Relating to this Offering and an Investment in Our Common Stock  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our principal stockholder has the ability to control our business, which may be disadvantageous to other stockholders.  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Following the completion of this offering, after giving effect to the recapitalization described under "Related Party
Transactions&#151;Recapitalization," Essex Woodlands Health Venture Fund VII, L.P., together with certain of its affiliates, which together we refer to as Essex Woodlands, will collectively
beneficially own or control approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the voting power of our outstanding common stock, assuming no exercise of the underwriters' option to purchase additional shares. In
addition, Ron Eastman, a Managing Director of Essex Woodlands, is a member of our board of directors. As a result of its ability to control a majority of the voting power of our outstanding common
stock, Essex Woodlands has the ability to control all matters requiring approval by our stockholders, including the election and removal of directors, amendments to our certificate of incorporation
and bylaws, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. Essex Woodlands may have interests that are different from those of
other stockholders. Moreover, this concentration of share ownership makes it impossible for other stockholders to replace directors and management without the consent of Essex Woodlands. In addition,
this significant concentration of share ownership may adversely affect the price at which prospective buyers are willing to pay for our common stock because investors may perceive disadvantages in
owning stock in companies with controlling stockholders. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We will be a "controlled company" within the meaning of the NASDAQ rules and, as a result, will qualify for exemptions from certain corporate governance requirements. If we
rely on these exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon completion of this offering, Essex Woodlands will continue to control a majority of the voting power of our outstanding common stock. As a
result, we will be a "controlled company" within the meaning of the NASDAQ corporate governance requirements. Under these rules, a company of which more than 50% of the voting power is held by an
individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including the requirements:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>that a majority of the board of directors consists of independent directors; </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>that we have a nominating and corporate governance committee that is
composed entirely of independent directors; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>that we have a compensation committee that is composed entirely of
independent directors. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
do not intend to utilize these exemptions. However, we may use these exemptions in the future, and as a result, we could choose not to have a majority of independent directors on our board of
directors, or any of our board committees. If that were the case, you would not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ corporate
governance requirements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the pro forma as adjusted amount of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, because the initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
substantially higher than the pro forma as adjusted net book value per share of our outstanding common
stock as of December&nbsp;31, 2013. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their
shares. There will also be substantial dilution from the issuance of additional shares of common stock in the recapitalization that is occurring concurrently with this offering. In addition, you may
also experience additional dilution upon future equity issuances, including upon conversion of any outstanding debt, or the exercise of stock options to purchase common stock granted to our employees,
consultants and directors under our stock option and equity incentive plans. See the section entitled "Dilution." </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> We expect that the price of our common stock will fluctuate substantially.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock was determined
through negotiations between the underwriters and us and may vary from the market price of our common stock following the offering. If you purchase shares of our common stock in this offering, you may
not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of this offering or, if it does develop,
it may not be sustainable. The trading prices of the securities of pharmaceutical companies have been highly volatile. The market price of our common stock may fluctuate significantly in response to
numerous factors, many of which are beyond our control, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the success of, and fluctuations in, the commercial sales of Clonidine TDS,
Fentanyl TDS and Crest Whitestrips products or any other products approved for commercialization; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the development status of our product candidates, including whether any of
our product candidates receive regulatory approval; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the execution of our partnering, manufacturing and other aspects of our
business plan; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>variations in the level of expenses related to our commercialization
activities; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the performance of third parties on whom we rely for clinical trials,
marketing, sales and distribution, including their ability to comply with regulatory requirements; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the results of our or our partners' preclinical studies and clinical trials; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>variations in the level of expenses related to our product candidates or
preclinical and clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>price and volume fluctuations in the overall stock market; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>changes in operating performance and stock market valuations of other
pharmaceutical companies; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>market conditions or trends in our industry or the economy as a whole; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our execution of collaboration, co-promotion, licensing or other
arrangements, and the timing of payments we may make or receive under these arrangements; </FONT></DD></DL>
</UL>
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<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the public's response to press releases or other public announcements by us
or third parties, including our filings with the SEC and announcements relating to litigation or other disputes, strategic transactions, intellectual property or fentanyl or other controlled
substances impacting us or our business; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the financial projections we may provide to the public, any changes in these
projections or our failure to meet these projections; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>changes in financial estimates by any securities analysts who follow our
common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>ratings downgrades by any securities analysts who follow our common stock; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the development and sustainability of an active trading market for our
common stock; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>future sales of our common stock by our officers, directors and significant
stockholders; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>other events or factors, including those resulting from war, incidents of
terrorism, natural disasters or responses to these events; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>changes in accounting principles. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, the stock markets, and in particular the NASDAQ Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In
the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our
resources and the attention of management could be diverted from our business. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a
result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet
our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of
our common stock. In addition, any future testing by us conducted in connection with Section&nbsp;404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention or improvement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
will be required, pursuant to Section&nbsp;404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial
reporting as early as the fiscal year ending September&nbsp;30, 2015. However, for as long as we are an "emerging growth company" under the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section&nbsp;404. We could be an emerging growth company for up to five years.
An independent assessment of the effectiveness of our internal controls could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could
lead to financial statement restatements and require us to incur the expense of remediation. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>We
are in the process of transferring from our previous financial tracking system to an updated enterprise resource planning system. Our previous system had been in place since our founding and the
transition will require new training and extensive changes to our system of our internal financial reporting. There is no guarantee that we will be able to transition smoothly and maintain effective
internal controls over the reporting process during this transition. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price
for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock
could decrease, which could cause our stock price and trading volume to decline. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> No active market for our common stock exists or may develop, and you may not be able to resell your common stock at or above the initial public offering price.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Prior to this offering, there has been no public market on which our common stock could be traded. The initial public offering price of our common
stock for this offering will be determined through negotiations between us and the representatives of the underwriters, and may not be indicative of the market price of our common stock following this
offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest
in our company will lead to the development of an active trading market on the NASDAQ Global Market or otherwise or how liquid that market might become. An active public market for our common stock
may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is
attractive to you, or at all. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Future sales of our common stock or securities convertible into our common stock may depress our stock price.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market could occur at any
time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will
have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding shares of common stock, based on the number of shares
outstanding as of December&nbsp;31, 2013, that may be sold after the expiration of lock-up agreements at least
180&nbsp;days after the date of this prospectus pursuant to Rule&nbsp;144 or Rule&nbsp;701 under the Securities Act of 1933, as amended, or the Securities Act, unless held by an affiliate of
ours, as more fully described in the section entitled "Shares Eligible for Future Sale." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Moreover,
we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the
public market upon issuance, subject to the lock-up agreements described above and in the section entitled "Underwriting&#151;No Sales of Similar Securities." </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>If
a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading
price of our common stock and impede our ability to raise future capital. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>45</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Anti-takeover provisions in our charter documents and Delaware law might deter acquisition bids for us that you might consider favorable.  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult without
the approval of our board of directors. These provisions:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>establish a classified board of directors so that not all members of our
board are elected at one time; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>authorize the issuance of undesignated preferred stock, the terms of which
may be established and shares of which may be issued without stockholder approval, and which may include rights superior to the rights of the holders of common stock; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>prohibit stockholder action by written consent, which requires all
stockholder actions to be taken at a meeting of our stockholders; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>provide that the board of directors is expressly authorized to make, alter,
or repeal our bylaws; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>establish advance notice requirements for nominations for elections to our
board or for proposing matters that can be acted upon by stockholders at stockholder meetings. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, because we are incorporated in Delaware, we are governed by the provisions of Section&nbsp;203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits
stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. These anti-takeover provisions and other provisions under Delaware law could discourage, delay
or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult
for you and other stockholders to elect directors of your choosing so as to cause us to take certain corporate actions you desire. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We qualify as an "emerging growth company" as defined in the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth
companies, which could make our common stock less attractive to investors.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We qualify as an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not "emerging growth companies" including certain reduced financial statement reporting obligations, reduced disclosure obligations
about our executive compensation arrangements, exemptions from the requirement that we solicit non-binding advisory votes on executive compensation or golden parachute arrangements, and exemption from
the auditor's attestation requirements of Section&nbsp;404(b) of the Sarbanes-Oxley Act. We cannot predict if investors will find our common stock less attractive because we may rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will remain an
"emerging growth company" until the earliest of (i)&nbsp;the last day of the fiscal year in which we have total annual gross revenues of $1&nbsp;billion or more, (ii)&nbsp;the last day of our
fiscal year following the fifth anniversary of the date of the completion of this offering, (iii)&nbsp;the date on which we have issued more than $1&nbsp;billion in nonconvertible debt during the
previous three years or (iv)&nbsp;the date on which we are deemed to be a large accelerated filer under the rules of the SEC. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Because management has broad discretion as to the use of the net proceeds from this offering, you may not agree with how we use them, and such proceeds may not be applied
successfully.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our management will have considerable discretion over the use of proceeds from this offering. We intend to use the net proceeds from this offering to
fund:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Phase&nbsp;2 clinical trials for MicroCor hPTH(1-34) and Corplex
Tamsulosin; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>scale up of production capability for our MicroCor products; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>formulation and development of our proprietary Corplex products; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>advancement of our MicroCor technology; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>46</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the repurchase of shares of common stock pursuant to the recapitalization
described in more detail in "Related Party Transactions&#151;Recapitalization;" and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>working capital and general corporate purposes. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, a portion of the net proceeds may also be used to acquire or license products, technologies or businesses. However, our management will have broad discretion in the application of the net
proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock. You will be relying on the judgment of
our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our
management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any cash
dividends on shares of our common stock for the foreseeable future. We are also restricted from paying dividends under the SVB line and the term loan agreement with Capital Royalty. Any determination
to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by
applicable law and other factors our board of directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend entirely on the
appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>47</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="di47201_special_note_regarding_forward-looking_statements"> </A>
<A NAME="toc_di47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including
statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words
"believe," "may," "will," "estimate," "continue," "anticipate," "would," "could," "should," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have
based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions,
including those described in the "Risk Factors" section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and
actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>You
should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we
believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to
update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="di47201_industry_and_market_data"> </A>
<A NAME="toc_di47201_2"> </A>
<BR></FONT><FONT SIZE=2><B>  INDUSTRY AND MARKET DATA    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general
expectations, market position, market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have
also made assumptions based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets for our solutions. These data involve a number of assumptions and
limitations, and you are cautioned not to give undue weight to such estimates. We believe the market position, opportunity and market size information included in this prospectus is reliable and the
conclusions contained in the third-party information are reasonable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which
we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other
factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>48</FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="di47201_use_of_proceeds"> </A>
<A NAME="toc_di47201_3"> </A>
<BR></FONT><FONT SIZE=2><B>  USE OF PROCEEDS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We estimate that our net proceeds from the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock in this offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million if the underwriters
exercise in full their option to purchase additional shares, assuming an initial public offering
price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, which is the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and
commissions and estimated
offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share would increase (decrease) the net
proceeds to us from this
offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting
estimated underwriting
discounts and commissions. Similarly, each increase (decrease)
of one million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering, after deducting estimated
underwriting discounts and commissions, by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
principal purpose of this offering is to create a public market for our common stock. We intend to use the net proceeds to us from this offering as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million for
Phase&nbsp;2 clinical trials for MicroCor hPTH(1-34) and Corplex Tamsulosin; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million for scale up
of production capability for our MicroCor products; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million for
formulation and development of our proprietary Corplex products; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million for
advancement of our MicroCor technology; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million for
the repurchase of shares
of common stock pursuant to the recapitalization described in more detail in "Related Party Transactions&#151;Recapitalization;" and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>any remaining balance for working capital and other general corporate
purposes. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets. However, we have no current plan,
commitments or obligations to do so. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Pending
other uses, we intend to invest the proceeds in interest-bearing, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government, or hold as
cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the application of the net proceeds we receive from our initial public
offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="di47201_dividend_policy"> </A>
<A NAME="toc_di47201_4"> </A>
<BR></FONT><FONT SIZE=2><B>  DIVIDEND POLICY    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation of our
business and do not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our board of
directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of
directors considers relevant. In addition, the SVB line and the term loan agreement with Capital Royalty restricts our ability to pay dividends. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>49</FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="dk47201_capitalization"> </A>
<A NAME="toc_dk47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  CAPITALIZATION    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table sets forth our cash and cash equivalents and capitalization as of December&nbsp;31,
2013:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>on an actual basis; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>on a pro forma basis to give effect to the following items that will occur
immediately prior to the closing of this offering: (i)&nbsp;the automatic conversion of all outstanding shares of our convertible preferred stock into common stock, (ii)&nbsp;the related
reclassification of the preferred stock warrant liability to additional paid-in capital upon the conversion of the shares of convertible preferred stock underlying the warrants that make up the
liability, (iii)&nbsp;the conversion of our outstanding convertible and subordinated notes into 54,779,413 shares of common stock and the related reclassification of the subordinated note embedded
derivative liability to additional paid-in capital, (iv)&nbsp;the repurchase of 10,885,884 shares from our founders and the related reclassification of our redeemable common stock to additional
paid-in capital, (v)&nbsp;the issuance of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock upon the automatic net exercise of certain outstanding warrants, based on the assumed initial
offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range on the cover page this prospectus, and (vi)&nbsp;the amendment and restatement of our certificate of incorporation
in connection with our
initial public offering; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>on a pro forma as adjusted basis to give effect to (i)&nbsp;the pro forma
adjustments set forth above and (ii)&nbsp;the issuance and sale by us of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock in this offering at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>The
unaudited pro forma and pro forma as adjusted information below is illustrative only, and cash and cash equivalents, total stockholders' equity and total capitalization following the completion of
our initial public offering will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing. You should read this table in
conjunction with the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock" and our financial statements and
related notes included elsewhere in this prospectus. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>50</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<TD WIDTH="63pt" style="font-family:arial;"></TD>
<TD WIDTH="15pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="63pt" style="font-family:arial;"></TD>
<TD WIDTH="15pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of December&nbsp;31, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Actual </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma<BR>
As Adjusted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,416</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Debt, current and long-term portions</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>65,903</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Recall liability, current and long-term portions</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,552</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>603</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,338</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual;
no shares authorized, issued or outstanding, pro forma and pro forma as adjusted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
57,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Redeemable common stock, par value $0.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
3,224</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stockholders' deficit:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock, par value of $0.001 per share; no shares authorized, issued or outstanding,
actual;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares authorized, and no shares issued or outstanding, pro forma and pro forma as adjusted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock, par value of $0.001 per share; 115,000,000 shares authorized and 22,514,144 shares issued and outstanding,
actual;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares authorized, pro forma and pro forma as adjusted;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
issued and outstanding, pro forma;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares issued and outstanding, pro forma as adjusted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>19</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(30,118</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(94,521</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total stockholders' equity (deficit)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(124,620</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:37pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total capitalization</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 <DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">A
$1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share would increase (decrease) each of cash
and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the
number of shares offered by us would increase (decrease) cash or cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming the assumed initial public offering price remains the same and after deducting the underwriting discounts and commissions. If the underwriters' option to
purchase additional shares is exercised in full, the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders' equity
and total capitalization would increase by approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, after deducting estimated underwriting discounts and commissions, and we would
have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of
our common stock issued and outstanding, pro forma as adjusted. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>51</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The table above excludes the following shares:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.22 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>4,718,000 shares of common stock issuable upon the exercise of options
granted between January&nbsp;1, 2014 and March&nbsp;3, 2014, with an exercise price of $0.41 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.92 per share, that do not expire upon the completion of this
offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.01 per share, that do not expire upon the completion of this offering; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>542,018 shares of common stock available for future issuance as of
March&nbsp;3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>52</FONT></P>

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<UL>
</UL>
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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="dm47201_dilution"> </A>
<A NAME="toc_dm47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  DILUTION    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share
of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after our initial public offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
pro forma net tangible book value as of December&nbsp;31, 2013 was $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock. Our pro forma net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of December&nbsp;31,
2013, after giving effect to the following items that will occur immediately prior to the closing of this offering: (i)&nbsp;the automatic conversion of all outstanding shares of our convertible
preferred stock into common stock, (ii)&nbsp;the related reclassification of the preferred stock warrant liability to additional paid-in capital upon the conversion of the shares of convertible
preferred stock underlying the warrants that make up the liability, (iii)&nbsp;the conversion of our outstanding convertible and subordinated notes into 54,779,413 shares of common stock and the
related reclassification of the subordinated note embedded derivative liability to additional paid-in capital, (iv)&nbsp;the repurchase of 10,885,884 shares from our founders and the related
reclassification of our redeemable common stock to additional paid-in capital, and (v)&nbsp;the issuance of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock upon the automatic
net exercise of certain outstanding warrants, based on the assumed initial offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range on the cover page this
prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>After
giving effect to our sale in our initial public offering of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock at an assumed initial public offering price of the common stock of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share,
the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of December&nbsp;31, 2013 would have been $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock. This represents an immediate increase in
pro forma as adjusted net tangible book value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to our existing stockholders and an immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to investors purchasing shares in our
initial public offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table illustrates this per share dilution. </FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Assumed initial offering price per share</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net tangible book value per share as of December&nbsp;31, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Increase in pro forma net tangible book value per share attributable to investors purchasing shares in our initial public offering</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma as adjusted net tangible book value per share after our initial public offering</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Dilution in pro forma net tangible book value per share to investors in this offering</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>A $1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share would increase (decrease) our pro forma as adjusted net
tangible book value per share after our initial public offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, assuming that the number of shares offered by us, as set forth on the cover page of this
prospectus, remains the
same, and after deducting the estimated underwriting discounts and commissions payable by us. Each increase of one million shares in the number of shares offered by us would increase our pro forma as
adjusted net tangible book value per share, and decrease the dilution per share to investors in this offering, by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. Each decrease of one million
shares in the number of
shares offered by us would decrease our pro forma as adjusted net tangible book value per share, and increase the dilution per share to investors in this offering, by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>53</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per share after giving effect to our initial public offering would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, and the dilution in pro forma net tangible book value per share to investors in our initial public offering would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
following table summarizes, on the pro forma as adjusted basis as described above, as of December&nbsp;31, 2013, the differences between the number of shares of our common stock purchased from
us, the total cash consideration paid and the average price per share paid by our existing stockholders and by our new investors purchasing shares in our initial public offering at the assumed initial
public offering price of the common stock of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the price range on the cover page of this prospectus, before deducting estimated
underwriting discounts and
commissions and estimated offering expenses payable by us: </FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Purchased </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total Consideration </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
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<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Average Price<BR>
Per Share </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Percent </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Percent </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Existing stockholders</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>New investors</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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<P style="font-family:arial;"><FONT SIZE=2>A $1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share would increase (decrease) total consideration paid by new
investors by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after
deducting estimated
underwriting discounts and commissions payable by us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% and our new investors would
own&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total
number of shares of our common stock outstanding after our initial public offering. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
above table and discussions are based on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock outstanding as of December&nbsp;31, 2013 on the pro forma as adjusted basis described above,
and exclude the
following shares:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.22 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>4,718,000 shares of common stock issuable upon the exercise of options
granted between January&nbsp;1, 2014 and March&nbsp;3, 2014, with an exercise price of $0.41 per share; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.92 per share, that do not expire upon the completion of this
offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December&nbsp;31, 2013, with a weighted-average exercise price of $0.01 per share, that do not expire upon the completion of this offering; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>542,018 shares of common stock available for future issuance as of
March&nbsp;3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>To
the extent that any outstanding options or warrants are exercised, new investors will experience further dilution. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>54</FONT></P>

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</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="do47201_selected_financial_data"> </A>
<A NAME="toc_do47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SELECTED FINANCIAL DATA    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following selected statement of operations data for fiscal 2012 and 2013 and the balance sheet data as of September&nbsp;30, 2012 and 2013 have
been derived from our audited financial statements and related notes included elsewhere in this prospectus. We derived the selected statements of operations data for the three months ended
December&nbsp;31, 2012 and 2013 and the selected balance sheet data as of December&nbsp;31, 2013 from our unaudited interim condensed financial statements and related notes included elsewhere in
this prospectus. Our unaudited interim condensed financial statements were prepared on the same basis as our audited financial statements and include, in our opinion, all normal recurring adjustments
that we consider necessary for a fair presentation of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may
be expected in the future. You should read the following selected financial data below in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and related notes included elsewhere in this prospectus. </FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="61pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="61pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="61pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="61pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>Statement of Operations Data:</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Revenues:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">35,716</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">38,704</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9,972</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">8,100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,838</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,750</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,588</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,064</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Other revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">306</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">816</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">64</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">304</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:22pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">42,860</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">50,270</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,624</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,468</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:9pt;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Costs and operating expenses:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cost of product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">24,360</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">24,828</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,233</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,229</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cost of contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,244</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,856</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,122</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,537</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Research and development expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,966</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,496</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,052</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">861</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">General and administrative expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,645</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,525</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,792</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,810</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">512</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">541</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">131</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">130</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(57</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(177</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(37</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:22pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total costs and operating expenses</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">43,670</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">49,069</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,287</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,530</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Income (loss) from operations</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(810</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,201</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">337</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,602</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Interest income</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Interest expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,247</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,705</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,773</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,064</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">21</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(14</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,367</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,029</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Other income</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">582</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Loss before income taxes</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,450</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,876</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Income tax benefit (expense)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss per share attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.24</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.62</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.06</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(0.09</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,227,342</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,452,114</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,341,554</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">22,521,505</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)
</font>:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">See Note&nbsp;14 to our annual audited financial statements and Note&nbsp;10 to our unaudited
interim condensed financial statements for an explanation of the method used to calculate basic and diluted net loss and pro forma net loss per share attributable to common stockholders and the
weighted average number of shares used in the computation of the per share amounts. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>55</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="63pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>Balance Sheet Data:</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cash and cash equivalents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,245</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,581</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,416</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Working capital</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,102</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">8,594</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,958</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total assets</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">37,202</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">44,022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">39,484</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">560</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">603</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,367</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,338</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,479</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,800</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,976</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Debt, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">54,330</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">63,685</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">65,903</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability, current and long-term portions</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,832</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,552</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Convertible preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Redeemable common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total stockholders' deficit</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(106,346</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(119,100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(124,620</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="dq47201_management_s_discussion_and_an__man03466"> </A>
<A NAME="toc_dq47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION<BR>  AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I>The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
the section titled "Selected Financial Data" and the financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to,
those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this prospectus. Our fiscal year ends September&nbsp;30. Throughout this discussion and
analysis, references to "fiscal" refer to the years ended September&nbsp;30.</I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Company Overview  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or
self-funded programs at earlier stages. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. All of our current products are distributed, promoted and marketed by our partners. Our partners include
The Procter&nbsp;&amp; Gamble Company, or P&amp;G, Par Pharmaceutical, Inc., Teva Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies.
Most of these entities have substantially greater financial and operating resources than we do, including global operations. We have never had, nor do we currently have, our own sales force or
marketing capabilities. We do not control the market prices that our marketing partners set for our products and, consequently, we do not control the market shares or rates of adoption for our
products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
partnership with P&amp;G began in 2005 with the development of Crest Whitestrips, which P&amp;G commercially launched in 2009. P&amp;G currently sells Whitestrips throughout North America. Our total revenues
from P&amp;G were $11.8&nbsp;million in fiscal 2013 and $3.0 million for the three months ended December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
partnership with Teva began in 2004, with Teva's predecessor, Barr Laboratories. Together with Barr, we developed Clonidine TDS, which Teva commercially launched in 2010. Teva currently sells
Clonidine TDS throughout North America. Our total revenues from Teva were $16.7&nbsp;million in fiscal 2013 and $3.7 million for the three months ended December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
partnership with Par is the result of an FTC-mandated divestiture of the product from Actavis,&nbsp;Inc. in connection with the merger with Watson Pharmaceuticals. We began the development of
Fentanyl TDS with Abrika LLLP in May&nbsp;2002, and Abrika was subsequently acquired by Actavis in 2007. Actavis commercially launched Fentanyl TDS in 2007. Par currently sells Fentanyl TDS
throughout the United States. Our total revenues from Par were $16.6&nbsp;million in fiscal 2013 and $3.2 million for the three months ended December&nbsp;31, 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>57</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase&nbsp;3
development by our partner Agile. AG200-15 is a combined hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, at levels comparable to low-dose oral
contraceptives, through the skin in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required before marketing a
new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional Phase&nbsp;3 clinical trial
based on this guidance and intends to supplement the NDA with the results of the additional Phase 3 clinical trial. Based on market research conducted by Agile, AG200-15 has the potential to reach a
peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market share of hormonal contraceptive
prescriptions in the United States currently represents approximately $108&nbsp;million of annual gross sales. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
are developing two additional products utilizing our proprietary technologies that we plan to advance into Phase&nbsp;2 trials in 2014 and 2015. MicroCor hPTH(1-34) utilizes our MicroCor
technology to deliver parathyroid hormone, a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form. Corplex Tamsulosin is a patch we are developing to
deliver tamsulosin to patients with benign prostatic hyperplasia, or enlarged prostate. It is designed to deliver a controlled dose over several days and to reduce side effects compared to currently
marketed products. We are not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have not been profitable since fiscal 2005 and, as of December&nbsp;31, 2013, had an accumulated deficit of $94.5&nbsp;million. We incurred net losses of $5.4&nbsp;million and
$13.9&nbsp;million in the fiscal years 2012 and 2013, respectively, and $2.1&nbsp;million for the three months ended December&nbsp;31, 2013. We expect to continue to incur net operating losses
for at least the next several years as we advance our products through clinical development, seek regulatory approval, prepare for and, if approved, proceed to further commercialization, expand our
operations and facilities, and grow in new and existing markets, territories, and industries. We will need substantial additional funding to support our operating activities. Adequate funding may not
be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations,
or financial condition. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Components of Statements of Operations  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Revenues  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During fiscal 2012 and 2013 and the three months ended December&nbsp;31, 2013, we recognized revenues in three categories: product revenues,
contract research and development revenues, and other revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Product
revenues represented 83% and 77% of our total revenues during fiscal 2012 and 2013, respectively, and 77% of our total revenues during the three months ended December&nbsp;31, 2013. Product
revenues consist of product sales, royalties and profit sharing from products that have been commercialized and are sold by our partners. Clonidine TDS, Fentanyl TDS and Crest Whitestrips make up the
significant majority of our product revenues. Our product revenues from Clonidine TDS in fiscal 2013 were higher than historic levels, primarily as a result of Teva's increased market share resulting
from a major competitor's diminished ability to supply its product for seven months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be lower than they were
during fiscal 2013, and more consistent with the amount of product revenues in fiscal 2012, as this competitor has resumed supply at historic levels. Based on forecasted demand provided to us from our
Fentanyl TDS marketing partner, Par, we expect our product revenues from Fentanyl TDS to continue to decline significantly in fiscal 2014. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We
also generate contract research and development revenues from agreements for the research, development and commercialization of our products. The terms of the agreements include nonrefundable </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>58</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>upfront
payments, partial or complete reimbursement of research and development costs and milestone payments. Contract research and development revenues are primarily derived from our development
activities related to AG200-15, Crest Whitestrips and a product currently in the late stages of development. In fiscal 2013, we received a total of $4.3&nbsp;million in contract research and
development revenues from Agile, $3.5&nbsp;million from Teva, $2.0&nbsp;million from P&amp;G and an aggregate of $0.9&nbsp;million from our other collaboration partners. These amounts represented
40%, 33%, 19% and 8%, respectively, of our total contract research and development revenues for fiscal 2013. For the three months ended December&nbsp;31, 2013, we received a total of
$0.1&nbsp;million in contract research and development revenues from Agile, $0.8&nbsp;million from Teva, $0.7&nbsp;million from P&amp;G and an aggregate of $0.5&nbsp;million from our other
collaboration partners, which amounts represented 6%, 37%, 32% and 25%, respectively, of our total contract research and development revenues for the three months ended December&nbsp;31, 2013. We
believe contract research and development revenues will continue to grow as we further develop existing products and as we continue to add new products with partners. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Other
revenues consists primarily of income derived from our arrangements with our partners, whereby a portion of the revenues received under these agreements is treated for accounting purposes as
rental income from
embedded leases associated with these relationships. Other revenues have not been and are not expected to be a significant portion of our revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Product Revenues  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The primary components of our cost of product revenues are materials, personnel costs, depreciation, facilities costs, other overhead costs, and
infrastructure expenses associated with the manufacturing of our products. Our manufacturing overhead costs are significant, and are currently allocated among our products at rates consistent with
current unit production volumes. As the number of units we manufacture rises, our overhead costs should rise less rapidly due to efficiencies of scale, resulting in lower cost to produce these higher
product volumes. Conversely, if total unit volumes fall, as we expect to be the case in fiscal 2014, the costs of product revenues, measured as a percentage of product revenues, will rise as we lose
economies of scale. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Contract Research and Development Revenues  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We incur expenses related to our contract research and development revenues from our partner agreements. These expenses consist primarily of personnel
costs, materials and supplies passed through to our partners, and overhead costs. We expense all contract research and development costs, including costs to be subsequently reimbursed under
development contracts, in the periods in which they are incurred. Our costs of contract research and development will fluctuate depending on the timing and stage of our various partner arrangements.
In certain cases, contract research and development costs exceed contract research and development revenues for those agreements, and will not be profitable. We enter into certain research and
development arrangements that we do not expect to be profitable because we expect that the long-term benefits of those arrangements outweigh the short-term costs. Furthermore, we recently, and expect
to continue to, enter into other research and development arrangements in which we will be sharing the costs of development with our partner resulting in our costs exceeding our revenues on these
projects. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Research and Development Expenses  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Research and development expenses include costs incurred to develop our transdermal drug delivery products. These costs consist of personnel costs,
materials and supplies, overhead and facility costs, preclinical and non-clinical development costs, clinical trial and related clinical manufacturing costs, contract services, and other outside
costs. We expense all research and development expenses in the periods in which they are incurred. We expect our research and development expenses will increase in absolute dollars in future periods
as we continue to invest in research and development activities related to further clinical
development of MicroCor hPTH(1-34) for Osteoporosis and Corplex Tamsulosin for BPH and other future development projects. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>59</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> General and Administrative Expenses  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>General and administrative expenses consist primarily of personnel costs, including stock-based compensation, for employees in our administration,
finance, business development, human resources and information technology functions. Other expenses include professional fees for accounting and legal services and costs of consultants and other
outside services. We expect that our general and administrative expenses will increase with the growth in our revenues and the continued development of our product pipeline, and will increase
significantly as we begin to operate as a public company after the completion of this offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Interest Income  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Interest income consists primarily of interest earned on our cash and cash equivalents balances. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Interest Expense  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Interest expense primarily consists of the interest charges associated with our convertible notes, subordinated note, term loan agreement, and capital
lease obligations, some of which are paid periodically in cash and others of which accrue without cash payments until maturity. For further discussion see "&#151;Liquidity and Capital
Resources&#151;Description of Certain Indebtedness." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Change in Fair Value of Preferred Stock Warrant Liability  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Certain outstanding convertible preferred stock warrants are classified as liabilities on our balance sheets at fair value as we determined them to be
derivative instruments because they contain antidilution provisions that protect the holders from certain future equity issuances at prices below the original issue price of the underlying security.
We remeasure the convertible preferred stock warrants to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded in the statements of operations and
comprehensive loss. We will continue to adjust the liability for changes in fair value until the earliest of the exercise or expiration of the warrant, conversion of underlying convertible preferred
stock into common stock and the removal of the antidilution protection. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Change in Fair Value of Subordinated Note Embedded Derivative Liability  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our outstanding subordinated note contains a provision that provides for the payment of an additional 100% principal payment to the holder upon a sale
of our company or substantially all of our assets. This provision is considered an embedded derivative which is remeasured to fair value at each balance sheet date with the corresponding gain or loss
from the adjustment recorded in the statements of operations and comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of settlement or termination
of this provision or the underlying subordinated note. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Other Income  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Other income consists primarily of a gain recognized from the settlement of the costs associated with the product recalls with one of our partnered
products. See Note&nbsp;12 to our annual audited financial statements and Note&nbsp;9 to our unaudited interim condensed financial statements included elsewhere in this prospectus for more
information about this settlement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Income Tax Benefit (Expense)  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our income tax benefit (expense) has not been historically significant to our business as we have primarily incurred losses from 2006 through fiscal
2013. As of September&nbsp;30, 2013, we had federal and state net operating loss carryforwards of $63.2&nbsp;million and $12.0&nbsp;million, respectively, for which we have provided a full
valuation allowance (as it is not more likely than not that we will realize the benefit of such net operating losses). The federal net operating loss carryforwards expire at various dates beginning in
2026 and the state net operating loss carryforwards expire at various dates beginning in 2017. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>60</FONT></P>

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<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Results of Operations  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table sets forth each of our costs and operating expenses as a percentage of our total revenues: </FONT></P>

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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months<BR>
Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Percentage of Revenues</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Costs and operating expenses:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>57</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>50</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>24</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>24</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>34</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>14</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>17</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total costs and operating expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>102</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>98</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>97</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>110</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">*</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Less
than 0.5% of revenues </FONT></DD></DL>

<P style="font-family:arial;"><FONT SIZE=2><B> Comparison of the Three Months Ended December&nbsp;31, 2012 and 2013  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Revenues  </I></B></FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="54pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="54pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,972</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8,100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,872</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2> (19</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,588</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,064</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(524</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(20</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>304</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>240</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>375</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:30pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,624</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,468</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,156</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2> (17</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Product revenues decreased $1.9&nbsp;million, or 19%, for the three months ended December&nbsp;31, 2013 compared to the same period in 2012. The decrease was primarily
driven by a decrease of $1.0&nbsp;million in product revenues from sales of Fentanyl TDS during the three months ended December&nbsp;31, 2013 as the weakening in demand which began in the latter
half of fiscal 2013 continued. The decrease was also impacted by a $0.5&nbsp;million decrease in Clonidine TDS sales during the three months ended December&nbsp;31, 2013 resulting from lower
production levels for the quarter on this product. We also experienced a $0.3&nbsp;million decrease in product revenues of Crest Whitestrips, related to reduced product demand during the three
months ended December&nbsp;31, 2013. We expect our product revenues from Fentanyl TDS to continue to decline throughout fiscal 2014, based on information provided by Par. In addition, we expect our
product revenues from Clonidine TDS during fiscal 2014 to be lower than they were during fiscal 2013, as a major competitor that had a diminished ability to supply its product for seven months during
fiscal 2013 resumed supply. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>61</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Contract
research and development revenues decreased $0.5&nbsp;million, or 20%, for the three months ended December&nbsp;31, 2013 compared to the same period in 2012. The decrease was primarily
driven by a $1.2&nbsp;million reduction in revenues related to AG200-15, as commercial-scale equipment and facilities neared completion, and was partially offset by a $0.6&nbsp;million increase
related to Crest Whitestrips. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Product Revenues  </I></B></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,233</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,229</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,004</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2> (16</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)%</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>Cost of product revenues decreased $1.0&nbsp;million, or 16%, for the three months ended December&nbsp;31, 2013 compared to the same period in 2012, primarily as a result of
lower product revenues. While product revenues decreased 19%, cost of product revenues decreased 16%. This difference was primarily due to the smaller decreases for the three months ended
December&nbsp;31, 2013 of product revenues from products with lower production costs, as well as those with a profit-sharing component. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Contract Research and Development Revenues  </I></B></FONT></P>


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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,122</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,537</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>415</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>Cost of contract research and development revenues increased $0.4&nbsp;million, or 13%, for the three months ended December&nbsp;31, 2013 compared to the same period in
2012, primarily as a result of an increase in the number of projects in development, which, in turn, resulted in higher direct and indirect labor costs for the three months ended December&nbsp;31,
2013 compared to the same period in 2012. While contract research and development revenues decreased 20% for the three months ended December&nbsp;31, 2013 compared to the same period in 2012, cost
of contract research and development revenues increased 13%. Increased cost of contract research and development revenues are primarily a result of increased costs associated with programs that
involve partner reimbursement from milestones to be received in subsequent quarters. The differences in contract research and development revenues versus contract research and development costs are a
function of the specific project activities undertaken in any given period, especially the proportion of those expenses that are reimbursements for pass-through expenses. In addition, revenue
recognition policies may restrict the recognition of certain revenues, while costs continue to be incurred in full. As a result of these revenue timing and expense composition differences, any or all
of our contract research and development projects may not be profitable in certain periods, but may be profitable in others. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Research and Development Expenses  </I></B></FONT></P>

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<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="17pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="35pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,052</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(191</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2> (18</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)%</FONT></TD>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>62</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Research and development expenses decreased $0.2&nbsp;million, or 18%, for the three months ended December&nbsp;31, 2013 compared to the same period in 2012, primarily as a
result of decreased research and development spending on Corplex Tamsulosin project and MicroCor technology. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> General and Administrative Expenses  </I></B></FONT></P>

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<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,792</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,810</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>18</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>General and administrative expenses remained relatively constant during the three months ended December&nbsp;31, 2013 compared to the same period in 2012. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Interest Expense  </I></B></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$(1,773</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$(2,064</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$(291</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Interest expense increased $0.3&nbsp;million, or 16%, for the three months ended December&nbsp;31, 2013 compared to the same period in 2012, primarily due to increased
borrowing under our term loan agreement with Capital Royalty. We drew down an additional $6.0&nbsp;million under this agreement in December 2012. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Change in Fair Value of Subordinated Note Embedded Derivative Liability  </I></B></FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>$&nbsp;&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>$(1,029</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>$(1,029</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>nm</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:arial;"><FONT SIZE=2>We recorded a change in fair value of subordinated note embedded derivative liability of $7.4&nbsp;million in fiscal 2013 due to the increased probability of a qualifying
transaction that would trigger payment of an additional amount equal to the outstanding principal under the subordinated note. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
determined that the fair value of the subordinated note embedded derivative feature had decreased by $1.0&nbsp;million during the three months ended December&nbsp;31, 2013, primarily due to the
increased likelihood of an initial public offering which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount which results in reducing
the value of the embedded derivative feature. Accordingly, we recorded a net decrease in fair value of subordinated note embedded derivative liability of $1.0&nbsp;million for the three months ended
December&nbsp;31, 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>63</FONT></P>

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<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=66,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=652488,FOLIO='63',FILE='DISK131:[13ZDG1.13ZDG47201]DQ47201A.;81',USER='DNICHOL',CD=';3-MAR-2014;13:36' -->
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Comparison of Fiscal 2012 and 2013  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Revenues  </I></B></FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>35,716</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>38,704</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,988</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,838</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,912</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>57</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>306</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>816</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>510</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>167</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>42,860</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>50,270</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,410</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>17</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Product revenues increased $3.0&nbsp;million, or 8%, in fiscal 2013 compared to fiscal 2012 primarily as a result of a $2.8&nbsp;million increase in product
revenues of Crest Whitestrips as P&amp;G continues to expand the customer base for this product and a $2.7&nbsp;million increase in product revenues of Clonidine TDS, primarily as a result of Teva's
increased market share resulting from a major competitor's diminished ability to supply its product for seven months during the year. These increases were partially offset by a $1.3&nbsp;million
decrease in product revenues from sales to one of our partners on a consumer product, with whom we terminated our relationship during fiscal 2013, and a $1.3&nbsp;million decrease in product
revenues from sales of Fentanyl TDS during fiscal 2013, primarily in the fourth quarter, as we began experiencing a weakening in demand. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Contract
research and development revenues increased $3.9&nbsp;million, or 57%, in fiscal 2013 compared to fiscal 2012, generally as a result of the increased number of products in development and
increased pass-through costs of third-party vendors, such as materials and supplies. More specifically, the increase was primarily the result of a $2.5&nbsp;million increase in these revenues
related to our motion sickness patch, $1.3&nbsp;million increase in these revenues related to AG200-15 and a $1.1&nbsp;million increase in these revenues related to Crest Whitestrips and beauty
products. These increases were partially offset by a $0.5&nbsp;million decrease in contract research and development revenues from a partnered development program which was temporarily placed on
hold during fiscal 2013. Our partner restarted the development of this product in the fourth quarter of fiscal 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Product Revenues  </I></B></FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>24,360</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>24,828</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>468</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Cost of product revenues increased $0.5&nbsp;million, or 2%, in fiscal 2013 compared to fiscal 2012 primarily as a result of a $0.2&nbsp;million increase in
direct and indirect overhead costs and a $0.2&nbsp;million increase in materials costs associated with the increase in product revenues. While product revenues increased 8% from fiscal 2012 to
fiscal 2013, cost of product revenues increased only 2%. This difference was primarily due to the increase in fiscal 2013 of product revenues from products with lower production costs, as well as
those with a profit-sharing component, thereby resulting in a lower comparative increase in costs for the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>64</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2>same
period. In addition, as our unit volumes increased in fiscal 2013, we were able to better leverage our fixed production costs. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cost of Contract Research and Development Revenues  </I></B></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,244</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,856</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,612</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Cost of contract research and development revenues increased $1.6&nbsp;million, or 16%, in fiscal 2013 compared to fiscal 2012 primarily due to a
$1.7&nbsp;million increase in materials, supplies and ancillary equipment costs that we incurred and passed through, generally at our cost, to our partners as revenues in fiscal 2013 related to
certain agreements. While contract research and development revenues increased 57% from fiscal 2012 to fiscal 2013, cost of contract research and development revenues increased only 16%. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
fiscal 2012, our various MicroCor contract feasibility projects resulted in a decrease in contract research and development revenues of $0.7&nbsp;million in fiscal 2013 compared to fiscal 2012
and a decrease of $1.6&nbsp;million in the costs of these projects in fiscal 2013 compared to fiscal 2012. In addition, our contract research and development revenues increased $2.5&nbsp;million
and $1.1&nbsp;million for the Teva motion sickness TDS and the P&amp;G Whitestrips projects in fiscal 2013 compared to fiscal 2012, respectively, while the costs of these projects increased
$1.9&nbsp;million and $0.7&nbsp;million, respectively, in fiscal 2013 compared to fiscal 2012. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Research and Development Expenses  </I></B></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,966</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,496</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,530</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>39</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>Research and development expenses increased $1.5&nbsp;million, or 39%, in fiscal 2013 compared to fiscal 2012 primarily due to continued expanded research and
development activities related to our MicroCor technology, which were $2.4&nbsp;million and $5.3&nbsp;million in fiscal 2012 and fiscal 2013, respectively. This increase was primarily due to a
$1.1&nbsp;million increase in personnel costs and a $0.8&nbsp;million increase in overhead costs. These increases were partially offset by a $0.4&nbsp;million decrease in out-of-pocket costs
associated with specific projects. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> General and Administrative Expenses  </I></B></FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,645</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,525</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,880</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>65</FONT></P>

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<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>General and administrative expenses increased $1.9&nbsp;million, or 40%, in fiscal 2013 compared to fiscal 2012 primarily due to a $1.9&nbsp;million increase
in salaries, benefits and bonuses as we began implementing an employee bonus plan and hiring additional personnel in preparation for being a public reporting company, along with a $0.5&nbsp;million
increase in directors' fees, travel costs, and outside consulting and other services costs. These increases were offset by a decrease of $0.5&nbsp;million in product liability costs associated with
Fentanyl TDS. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Interest Expense  </I></B></FONT></P>

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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(5,247</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(7,705</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,458</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>47</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>Interest expense increased $2.5&nbsp;million, or 47%, in fiscal 2013 compared to fiscal 2012 primarily due to increased borrowing under our term loan agreement
with Capital Royalty. We drew down $29.0&nbsp;million and $6.0&nbsp;million under this agreement in August&nbsp;2012 and December&nbsp;2012, respectively. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Change in Fair Value of Subordinated Note Embedded Derivative Liability  </I></B></FONT></P>


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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 to 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>$ Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>% Change </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Dollars in thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(7,367</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(7,367</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>nm</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2>We recorded a change in fair value of subordinated note embedded derivative liability of $7.4&nbsp;million in fiscal 2013 due to the increased probability of a
qualifying transaction that would trigger payment of an additional amount equal to the outstanding principal under the subordinated note. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Liquidity and Capital Resources  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Since fiscal 2006, we have incurred losses from operations. Only recently have we had positive cash flows from our operations. For fiscal 2013, we
incurred a net loss of $13.9&nbsp;million and used $1.0&nbsp;million of cash from operating activities. For the three months ended December&nbsp;31, 2013, we incurred a net loss of
$2.1&nbsp;million and used $2.7&nbsp;million of cash from operating activities. As of December&nbsp;31, 2013, we had working capital of $6.0&nbsp;million and an accumulated deficit of
$94.5&nbsp;million. Our principal sources of liquidity as of
December&nbsp;31, 2013 were cash and cash equivalents totaling $7.4&nbsp;million. We hold our cash and cash equivalents in a variety of interest-earning instruments, including investments backed
by U.S. government agencies, corporate debt securities and money market accounts. Since our inception, we have financed our operations primarily with the net proceeds of $27.9&nbsp;million from the
sale of our convertible preferred stock, excluding the $3.6&nbsp;million of cash received from our acquisition of StrataGent Life Sciences in 2007 and $105.8&nbsp;million from borrowings under
various debt arrangements, including lines of credit. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>66</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Plan of Operations and Future Funding Requirements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended September 30, 2013 with respect to this uncertainty. Our ability to
continue as a going concern will require us to obtain additional financing to fund our operations. We believe that the net proceeds from this offering and our existing cash and cash equivalents,
together with interest thereon and our existing line of credit, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions
that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need to raise additional capital following this offering to fund
our operations and continue to support our planned research and development and commercialization activities. The sale of additional equity securities would result in additional dilution to our
stockholders and those securities may have rights senior to those of our common stock. The incurrence of indebtedness would result in increased debt service obligations and could result in operating
and financing covenants that would restrict our operations. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs
or commercialization efforts, or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would
otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available. In addition, our ability to achieve profitability or to respond to competitive
pressures would be significantly limited. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Description of Certain Indebtedness  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our line of credit with our commercial bank, Silicon Valley Bank, or our SVB line, matures on August&nbsp;31, 2014. The SVB line provides for
borrowings up to $6.0&nbsp;million and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all of our assets. Advances
under the line of credit are based on 80% of our eligible accounts receivable. The SVB line bears interest at the bank's prime rate (an effective rate of 4.25% as of September&nbsp;30, 2013 and
December&nbsp;31, 2013) and provides for a minimum monthly interest charge of $5,000. The SVB line contains a minimum monthly liquidity covenant of $2.0&nbsp;million of net cash on deposit with
Silicon Valley Bank, with which we were in compliance as of September&nbsp;30, 2013 and December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
$35&nbsp;million term loan agreement with Capital Royalty requires interest to be paid quarterly at a simple annual rate of 15%, and all outstanding principal be repaid in four equal quarterly
payments beginning September&nbsp;30, 2016 and ending on June&nbsp;30, 2017. Pursuant to the agreement, we plan to continue deferring cash payment of 3.5% on the outstanding principal from the
first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes. As of December&nbsp;31, 2013, the principal amount outstanding under the term
loan agreement was $36.7&nbsp;million. The amounts outstanding under the term loan agreement are collateralized by all of our assets and the agreement provides for a prepayment penalty if we choose
to repay principal prior to maturity, or upon other specified events, including a change of control. The agreement provides for financial covenants for quarterly minimum revenues, beginning
September&nbsp;30, 2014 and minimum liquidity of $2.0&nbsp;million, with which we were in compliance as of September&nbsp;30, 2013 and December&nbsp;31, 2013. We refer to the term loan
agreement with Capital Royalty and the SVB line collectively as our senior debt. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
June and November&nbsp;2008, we entered into certain note and warrant purchase agreements pursuant to which we issued to certain investors, including Essex Woodlands, one of our principal
stockholders, secured convertible promissory notes with an aggregate principal amount of $20.0&nbsp;million, $10.0&nbsp;million of which we repaid in August&nbsp;2012. The amounts outstanding
under the convertible notes are collateralized by a </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>67</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>security
interest in all of our assets, subordinated to the interests of our senior debt. In September&nbsp;2012, we amended and restated these notes and delivered to the noteholders new amended and
restated secured convertible promissory notes with aggregate remaining principal amounts of $10.0&nbsp;million, which matures on July&nbsp;1, 2017. We refer to these as our convertible notes.
Interest accrues on these convertible notes at a rate of 10% per annum, and pursuant to an intercreditor agreement, we are not permitted to pay interest on these notes until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
May&nbsp;2009, we entered into a note purchase agreement pursuant to which we issued to Essex Woodlands a subordinated secured promissory note with an aggregate principal amount of
$13.0&nbsp;million. The amount outstanding under the subordinated note is collateralized by a security interest in all of our assets, subordinated to the interests of our senior debt. In
September&nbsp;2012, we amended and restated this note and delivered to Essex Woodlands a new amended and restated subordinated secured promissory note with the same aggregate principal amount,
which matures on July&nbsp;1, 2017. We refer to this as our subordinated note. Interest accrues at a rate of 5% per annum, and pursuant to an intercreditor agreement, we are not permitted to pay
interest on this note until maturity. This subordinated note provides for an additional payment equal to 100% of the principal amount of the note to the holder upon a sale of our company or
substantially all of our assets. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
aggregate principal amounts and accrued interest of $19.1&nbsp;million and $15.9&nbsp;million under the convertible notes and the subordinated note, as of December&nbsp;31, 2013, will be
converted into shares of our capital stock in connection with the recapitalization described in "Related Party Transactions&#151;Recapitalization." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
also have several other credit facilities under which we have borrowed funds, including capital leases for equipment purchases, notes payable with lessors for tenant improvements made to leased
facilities, and notes payable used to fund the annual insurance premium for our product liability policies. See Note&nbsp;6 to our annual audited financial statements and Note&nbsp;4 to our
unaudited interim condensed financial statements included elsewhere in this prospectus for further details. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
connection with certain of our partner arrangements, our partners purchase equipment that we use in the production of their products. This reduces our need for financing and lowers the cost of
manufacturing these products for these partners, but also limits our ability to use this equipment for other partners' products. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Cash Flows  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table summarizes our cash flows for the periods indicated: </FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="59pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="59pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash provided (used) by operating activities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(982</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,768</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,679</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash used in investing activities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,360</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(7,939</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(3,486</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,641</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash provided (used) by financing activities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,992</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,257</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,035</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,845</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2><I> Cash Flows from Operating Activities  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash used by operating activities for the three months ended December&nbsp;31, 2013 was $2.7&nbsp;million and was primarily driven by cash
provided by changes in our working capital accounts and our net loss adjusted for non-cash items. The net loss of $2.1&nbsp;million reflects non-cash charges of $1.0&nbsp;million related to the
change in fair value of the subordinated debt embedded derivative, $0.4&nbsp;million of property and equipment depreciation, $0.1&nbsp;million in amortization of intangible assets and
$0.1&nbsp;million in amortization of the debt </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>68</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>discount
and issuance costs. The $0.3&nbsp;million decrease in net operating assets was primarily due to a $1.4&nbsp;million increase in accounts receivable and unbilled accounts receivable, a
$0.7&nbsp;million increase in prepaid and other current assets, and a $0.3&nbsp;million decrease in recall liability. These cash outflows were offset by a $1.3&nbsp;million increase in accrued
expenses and other current liabilities, $0.4&nbsp;million in decreased inventories, and $0.4&nbsp;million in non-cash interest associated with our convertible and subordinated notes. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
used by operating activities for the three months ended December&nbsp;31, 2012 was $2.8&nbsp;million and was primarily driven by cash provided by adjustments in our working capital accounts
and our net loss adjusted for non-cash items. The net loss of $1.4&nbsp;million reflects non-cash charges of $0.5&nbsp;million of property and equipment depreciation, $0.1&nbsp;million in
amortization of intangible assets, $0.1&nbsp;million in amortization of the debt discount and issuance costs, and $0.2&nbsp;million of stock-based compensation. The $2.2&nbsp;million increase in
net operating assets was primarily due to a $2.4&nbsp;million increase in accounts receivable, a $0.3&nbsp;million increase in inventories, $0.5&nbsp;million in decreased accounts payable, and
$0.1 million decrease in accrued expenses and other current liabilities. These cash outflows were partially offset by a $0.7&nbsp;million increase in deferred contract revenue, and
$0.4&nbsp;million in non-cash interest associated with our convertible and subordinated notes. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
used by operating activities for fiscal 2013 was $1.0&nbsp;million and was primarily driven by cash provided by adjustments in our working capital accounts and our net loss adjusted for
non-cash items. The net loss of $13.9&nbsp;million reflects non-cash charges of $7.4&nbsp;million related to the change in fair value of the subordinated debt embedded derivative,
$1.9&nbsp;million of property and equipment depreciation, $0.5&nbsp;million in amortization of intangible assets, $0.5&nbsp;million in amortization of the debt discount and issuance costs, and
$0.3&nbsp;million of stock-based compensation. The $2.3&nbsp;million increase in net operating assets was primarily due to a $1.7&nbsp;million increase in non-cash interest associated with our
convertible and subordinated notes. These increases were partially offset by a $0.9&nbsp;million decrease in accounts payable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
provided by operating activities for fiscal 2012 was $40,000 and was primarily driven by cash provided by adjustments in our working capital accounts and our net loss of $5.4&nbsp;million
adjusted for certain non-cash items. The net loss includes non-cash charges of $2.0&nbsp;million for property and equipment depreciation, $0.5&nbsp;million in
amortization of intangible assets, $1.0&nbsp;million in amortization of the debt discount and issuance costs, and $3.0&nbsp;million in non-cash consideration associated with the settlement of our
liability to Actavis related to a product recall. The $5.6&nbsp;million increase in net operating assets was primarily due to a $0.9&nbsp;million decrease in accounts receivable, a
$3.2&nbsp;million increase in accrued interest payable and a $3.5&nbsp;million increase in deferred contract revenues, resulting from payments received from partners under development agreements,
including $2.8&nbsp;million from Agile in connection with the buildout of the commercial manufacturing facility, partially offset by a $1.3&nbsp;million decrease in accounts payable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Cash Flows from Investing Activities  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash used in investing activities for the three months ended December&nbsp;31, 2013 was $1.6&nbsp;million, consisting primarily of capital
expenditures of $1.5&nbsp;million for equipment and leasehold improvements to support operations and expenditures of $0.1&nbsp;million relating to acquisition of patents and licensing rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
used in investing activities for the three months ended December&nbsp;31, 2012 was $3.5&nbsp;million, consisting primarily of capital expenditures of $3.4&nbsp;million for equipment and
leasehold improvements to support operations and expenditures of $0.1&nbsp;million relating to acquisition of patents and licensing rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
used in investing activities for fiscal 2013 was $7.9&nbsp;million, consisting primarily of capital expenditures of $7.2&nbsp;million for equipment and leasehold improvements to support
operations and expenditures of $0.7&nbsp;million relating to acquisition of patents and licensing rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
used in investing activities for fiscal 2012 was $2.4&nbsp;million, consisting primarily of capital expenditures of $1.9&nbsp;million for equipment to support operations and expenditures of
$0.5&nbsp;million relating to acquisition of patents and licensing rights. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>69</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>For
fiscal 2014, we expect to invest approximately $6.4&nbsp;million in capital equipment and leasehold improvements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Cash Flows from Financing Activities  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash used in financing activities for the three months ended December&nbsp;31, 2013 was $1.8&nbsp;million, consisting of repayments of
$1.9&nbsp;million under our SVB line and $0.5&nbsp;million of repayments of principal of our long-term debt and capital lease obligations. These decreases were partially offset by
$0.5&nbsp;million of drawdowns under our SVB line. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
provided by financing activities for the three months ended December&nbsp;31, 2012 was $6.0&nbsp;million, consisting of $6.0&nbsp;million in proceeds from borrowings under our term loan
agreement, a $0.6&nbsp;million tenant improvement loan and a $1.0&nbsp;million increase from drawdowns under our SVB line. These increases were partially offset by our repayments of
$1.1&nbsp;million under our SVB line and $0.4&nbsp;million of repayments of principal of our long-term debt and capital lease obligations. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
provided by financing activities for fiscal 2013 was $10.3&nbsp;million, consisting of $7.2&nbsp;million in proceeds from borrowings, including $6.0&nbsp;million drawn under our term loan
agreement, a $2.3&nbsp;million increase from proceeds under capital leases and $5.8&nbsp;million of drawdowns under our SVB line. These increases were partially offset by our repayment of
$3.5&nbsp;million under our SVB line, $1.4&nbsp;million on principal of our long-term debt and capital lease obligations </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Cash
provided by financing activities for fiscal 2012 was $14.0&nbsp;million consisting primarily of $36.5&nbsp;million in net proceeds from long-term debt financings, including
$29.0&nbsp;million drawn under our term loan agreement, and $24.7&nbsp;million of drawdowns from our then existing line of credit. These increases were partially offset by our repayment of
$26.3&nbsp;million under our then existing line of credit, $10.0&nbsp;million of principal on convertible notes and $9.3&nbsp;million of principal on our long-term debt and capital lease
obligations as well as payment of $1.7&nbsp;million for transaction costs related to our long-term debt. We used a portion of the proceeds from our term loan agreement to repay $10.0&nbsp;million
of our convertible notes and $5.7&nbsp;million of other long-term debt. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Contractual Obligations and Other Commitments  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table summarizes our contractual obligations as of September&nbsp;30, 2013: </FONT></P>

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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Payments Due by Period </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
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<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:85pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Contractual Obligations:

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Less Than<BR>
1 Year </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>1 to 3<BR>
Years </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>3 to 5<BR>
Years </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>More Than<BR>
5 Years </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total debt obligations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,330</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,219</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>49,762</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>374</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63,685</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest on total debt obligations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,229</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>15,028</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,561</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>28,882</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operating lease obligations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>974</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,366</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,276</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,826</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capital lease obligations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,029</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,580</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>72</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,681</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total contractual obligations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,562</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>27,193</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>57,605</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,714</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>103,074</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
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<P style="font-family:arial;"><FONT SIZE=2>The table above excludes a recall liability of $4.8&nbsp;million as of September&nbsp;30, 2013 relating to a settlement reached with Actavis for Fentanyl
TDS. See Note&nbsp;12 to our annual audited financial statements included elsewhere in this prospectus. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>70</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In addition, the table above also excludes any potential payments resulting from the provision in our subordinated debt that provides for the payment of an additional 100%
principal payment to the holders upon a sale of our company or a sale of substantially all of our assets and any increase in fair value of the note associated with the modification of the note related
to the recapitalization. The table also above excludes payments in kind on the term loan agreement and interest on the subordinated and convertible notes. See Note&nbsp;6 to our annual audited
financial statements included elsewhere in this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2013, we had outstanding commitments to acquire $0.4&nbsp;million of capital equipment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Off-Balance Sheet Arrangements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Segment Information  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have one business activity and operate in one reportable segment. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Quantitative and Qualitative Disclosures about Market Risk  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are exposed to certain market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities as follows: </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Interest Rate Risk  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We had cash and cash equivalents and short-term investments of $7.4&nbsp;million as of December&nbsp;31, 2013. Our cash and cash equivalents are
held in a variety of interest-earning instruments, including investments backed by U.S. government agencies, corporate debt securities and money market accounts. Such interest-earning instruments
carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding debt of $65.9&nbsp;million as of December&nbsp;31, 2013, of
which $2.7&nbsp;million is due within 12 months. Amounts outstanding under our SVB line carry a variable interest rate. A hypothetical 10% change in interest rates during any of the periods
presented would not have had a material impact on our financial statements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative
purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we
anticipate being exposed to, material risks due to changes in interest rates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Critical Accounting Polices and Estimates  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of
these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we could have reasonably used different accounting estimates, and in other
instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. To the extent that there are material
differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the
accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>71</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> Revenue Recognition  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We generate revenues from agreements for the development and commercialization of our products. The terms of these agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales, profit sharing, and royalties. Where applicable multiple element
arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This determination is generally based on whether
any deliverable has stand-alone value to the customer. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement consideration to identified units of
accounting. The selling price used for each unit of accounting will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific nor third-party evidence is available. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
recognize revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable; and collectability is
reasonably assured. During fiscal 2012 and 2013 and for the three months ended December&nbsp;31, 2012 and 2013, we recognized revenues from the sale of products, related royalties and profit sharing
on our partners' sales of our products as well as, from contract research and development activities, and from other revenues. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Product
revenues make up a majority of our total revenues during fiscal 2012 and 2013, comprising 83% and 77% of total revenues, respectively. During the three months ended December&nbsp;31, 2012
and 2013, product revenues comprised 79% and 77% of total revenues, respectively. Product revenues consist of product sales, royalties and profit sharing we receive from our marketing partners. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
generally recognize revenues from product sales as products are shipped and title and risk of loss passes to the marketing partner. We have royalty and profit sharing agreements pursuant to which
we earn revenues based on the amount of product sold, on the amount of profits earned by our marketing partners' sales of such products. We generally recognize royalty and profit sharing revenues at
the time our marketing partners report product sales to us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Typically,
we have not granted licenses to partners at the beginning of our development arrangements and, thus, there are no delivered items separate from the research and development services
provided. As such, upfront payments are recorded as deferred revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance
that is consistent with the terms of the research and development obligations contained in the respective agreements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
generally recognize revenues related to research and development funding received as the related services or activities are performed in accordance with the contract terms. To the extent that
agreements specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified
rates in the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally,
all of our agreements provide for reimbursement to us of our third-party expenses, and we bill for such reimbursable expenses as revenues as they are incurred. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
use the milestone method for recognizing revenues in agreements with contingent payments. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is
recognized in its entirety in the period in which the milestone is achieved. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>72</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> Impairment of Long-Lived Assets  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We assess the impairment of long-lived assets, such as property and equipment subject to depreciation and amortization, when events or changes in
circumstances indicate that their carrying amount may not be recoverable. Among the factors and circumstances we considered in determining recoverability are: (i)&nbsp;a significant adverse change
in the extent to which, or manner in which, a long-lived asset is being used or in its physical condition; (ii)&nbsp;a significant adverse change in legal factors or in the business climate that
could affect the value of a long-lived asset, including an adverse action or assessment by a regulator; (iii)&nbsp;an accumulation of costs significantly in excess of the amount originally expected;
and (iv)&nbsp;current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with the
use of a long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds
the fair value of the asset. We did not record any impairment losses during fiscal 2012 and 2013 or during the three months ended December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Convertible Preferred Stock Warrants  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We account for certain warrants to purchase shares of our convertible preferred stock as liabilities at fair value as we have determined that some of
these warrants are derivative instruments because they contain antidilution provisions that protect the holders from certain equity issuances at a price below the original issue price of the
underlying security. We remeasure these warrants to fair value at each balance sheet date, and recognize any change in the fair value as a change in the warrant liability in our statements of
operations and comprehensive loss. We estimated the fair value of these warrants at the respective balance sheet dates using the Option Pricing Model, or OPM, in fiscal 2012, and the
Probability-Weighted Expected Return Model, or PWERM, in fiscal 2013 and as of December&nbsp;31, 2013. We use a number of assumptions to estimate the fair value including the likelihood of various
scenarios, the expected volatility and the fair value of the underlying stock under each scenario. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>These
assumptions are inherently subjective, and the fair value of these warrants may have differed significantly had we used different assumptions. We will continue to adjust this warrant liability
for changes in fair value until the earliest of an exercise or expiration of the warrants, the conversion of underlying convertible preferred stock into common stock, and the removal of the
antidilution protection. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Subordinated Note Embedded Derivative Liability  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During fiscal 2009, we issued a subordinated note in the aggregate principal amount of $13.0&nbsp;million. This subordinated note contains a
provision that provides for the payment of an additional payment equal to 100% of the principal amount of the note to the holder upon a sale of our company or substantially all of our assets. This
provision was determined to be an embedded derivative requiring bifurcation and separate accounting. The embedded derivative liability is remeasured to fair value at each balance sheet date with the
corresponding gain or loss from the adjustment recorded in the statements of operations and comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of
settlement or termination of this provision or repayment of the underlying subordinated note. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
fair value of the embedded derivative was measured with the PWERM valuation methodology. Under this methodology, fair value is primarily driven by the assessment of the probability and timing of
scenarios that could result in the anticipated sale of our company or its significant assets prior to the note's maturity, which would trigger the payment of the additional amount equal to the
outstanding principal of the subordinated note. At each balance sheet date from the date of issuance through September&nbsp;30, 2012, the likelihood of a sale of our company or our significant
assets that would trigger such a payment prior to the note's maturity was evaluated to be extremely low. As a result, the fair value of the embedded derivative was immaterial and we did not record a
value through fiscal 2012. In fiscal 2013, several factors resulted in significantly increased uncertainty regarding our business, including a significant delay in the planned 2013 launch of the
AG200-15 contraceptive patch product. Primarily due to the resulting delay and uncertainty </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>73</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>of
the timing of the launch of this product, we determined that we would experience a significant reduction in our projected cash flows as well as a reduction in the probability that we would have
adequate cash flow to finance the planned expansion of our operations and repay or refinance the debt without additional financing. Accordingly, the probability of transactions that would trigger the
embedded derivative increased greatly in fiscal 2013. This increased probability caused the estimated fair value of the embedded derivative to increase to $7.4&nbsp;million. This change in the
estimated fair value of $7.4&nbsp;million was, therefore, recorded to change in fair value of subordinated note embedded derivative in fiscal 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We
determined that the fair value of the subordinated note embedded derivative feature had decreased by $1.0&nbsp;million during the three months ended December&nbsp;31, 2013, primarily due to the
increased likelihood of an initial public offering which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount that results in reducing
the value of the embedded derivative feature. Accordingly, we recorded a net decrease in fair value of subordinated note embedded derivative liability of $1.0&nbsp;million for the three months ended
December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
part of the recapitalization described in Note&nbsp;4 to the unaudited interim condensed financial statements for the three months ended December&nbsp;31, 2013, in December 2013 the
subordinated note was modified to provide that in the event of a qualifying initial public offering or equity financing, the note will automatically convert into 34.2&nbsp;million shares of common
stock or the equivalent amount of preferred stock. As this represents a substantial modification of the debt, it is accounted for as an extinguishment. Accordingly, the book value of the debt prior to
the conversion was removed from the financial statements and the fair value of the debt after the modification, including the value of the conversion feature, of $16.5&nbsp;million was recorded. As
the holder of the subordinated debt controls the majority of our equity and can appoint the majority of our board of directors, the modification of the debt is considered a transaction with owners.
Accordingly, the difference between the book value of the debt prior to the modification and the fair value of the debt after modification was recorded as a $3.5&nbsp;million reduction in additional
paid in capital. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
fair value of the subordinated note was measured with the PWERM valuation methodology. Under this methodology, the fair value of the note is driven by the cash flows calculated under various
scenarios using the estimated probability and timing of each scenario, as determined by our board of directors. The scenarios and the estimated probability and timing used in calculating the fair
value of the notes were as follows:&nbsp;(i)&nbsp;25% to a scenario assuming our liquidation, or a liquidation scenario, (ii)&nbsp;35% to a scenario assuming an initial public offering, or an
IPO scenario, and (iii)&nbsp;40% to a scenario assuming a sale of our company, or an M&amp;A scenario. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Stock-Based Compensation  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Stock-based compensation expense is measured based on the grant-date fair value of the stock-based awards. We estimated the fair value of each
employee stock option on the date of grant using the Black-Scholes option-pricing model. We recognize compensation costs for all employee stock-based compensation awards that are expected to vest over
the requisite service period of the awards, which is generally the awards' vesting period. These amounts are reduced by an estimated forfeiture rate. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
Black-Scholes option-pricing model requires the use of assumptions, some of which are highly subjective and complex. The assumptions include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Expected term.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The expected term
represents the period that our stock-based awards are expected to be outstanding before exercise or cancellation. Through December&nbsp;31, 2013, our historical share option exercise experience did
not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data points, and we estimated the expected term by using the simplified method; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Risk-free interest rate.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The
risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent term; </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Expected volatility.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The expected
volatility is derived from the historical stock volatilities of several comparable publicly-traded peers over a period approximately equal to the expected term of the awards because we have limited
information on the volatility of our common stock since we have no trading history. When making the selections of the comparable publicly-traded peers to be used in the volatility calculation, we
considered the size, operational and economic similarities to our principal business operations; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Expected dividend yield.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The
expected dividend yield is based on our current expectations about our anticipated dividend policy, which is that we will not pay dividends for the foreseeable future. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
did not grant any stock options in fiscal 2012. The fair value of each employee stock option granted during fiscal 2013 was estimated at the date of grant using a Black-Scholes option-pricing model
with the following assumptions: </FONT></P>

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<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected term (in years)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2.50&nbsp;-&nbsp;6.08</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.70%&nbsp;-&nbsp;1.38%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected volatility</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>71%&nbsp;-&nbsp;75%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected dividend rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>We recorded stock-based compensation expense of $0.1&nbsp;million, $0.3&nbsp;million and $56,000 for fiscal 2012, 2013 and the three months ended
December&nbsp;31, 2013, respectively. We expect to continue to grant stock options and other equity-based awards in the future and, to the extent that we do, our stock-based compensation expense
recognized in future periods will likely increase. We did not grant any stock options during the three months ended December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Significant factors, assumptions and methodologies used in determining the estimated fair value of our common stock  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are also required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations
using the Black-Scholes option-pricing model. Our board of directors, with the assistance of management, determined the fair value of our common stock on each grant date in accordance with the
guidelines outlined in the </FONT><FONT SIZE=2><I>American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as
Compensation</I></FONT><FONT SIZE=2>. The fair value of our common stock on the date of grant is determined by taking into account several factors, including the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>contemporaneous valuations performed by unrelated third-party specialists; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>indebtedness; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>rights, preferences, and privileges of our convertible preferred stock
relative to those of our common stock; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>actual operating and financial performance; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>present value of future cash flows; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>likelihood of achieving a liquidity event, such as an initial public
offering or a sale of our company; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>given prevailing market conditions and the nature and history of our
business; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>illiquidity of stock-based awards involving securities in a private company; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>experience of our management team; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>market multiples of comparable companies in our industry; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>stage of development; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>industry information such as market size and growth; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>macroeconomic conditions. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>75</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In
determining a fair value for our common stock, we generally considered two valuation approaches to determine the enterprise value of our business: the income approach and the market approach. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
income approach estimates the fair enterprise value of a company based on the present value of the company's future estimated cash flows and the residual value of the company beyond the forecast
period. These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate, to reflect the
risks inherent in the company achieving these estimated cash flows. The discount rate used in our third-party valuations was based primarily on benchmark venture capital studies of discount rates for
other companies in similar stages of development. The income approach was a significant component of all of the valuations noted in this discussion. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
market approach estimates the fair enterprise value of a company by calculating and applying market multiples of comparable publicly traded companies in the biotechnology and pharmaceutical
industries or similar lines of business. The market multiples are based on key metrics implied by the enterprise values of our comparable publicly-traded peers and, for our valuations we primarily
utilized the last twelve months and projected twelve months revenue multiples from our comparable publicly-traded peers in the market approach. These observed multiples were averaged and then applied
to our historical twelve months and projected revenues to arrive at an enterprise value. We deemed multiples of revenues to be the most relevant in our industry as neither we nor many of our peer
companies have reached normalized profitability or generated positive historical profit thus making the application of profit based multiples less reliable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Certain
items as of the valuation date, such as the current balance of cash and cash equivalents, net present value of net operating loss carryforwards, or NOLs, and estimated capital expenditures,
were added to or deducted from the enterprise value in order to determine the equity value under each of the valuation approaches. The equity values determined by these valuation approaches were then
weighted to determine the aggregate equity value of our business. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
resulting equity values were then allocated to the common stock using either OPM or PWERM. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
OPM treats common stock and convertible preferred stock as call options on a business, with exercise prices based on the liquidation preference of the convertible preferred stock. Therefore, the
common stock has value only if the funds available for distribution to the common stockholders exceeds the value of the total liquidation preference of the preferred stock at the time of a liquidity
event such as a merger, sale or initial public offering, assuming the business has funds available to make a liquidation preference meaningful and collectible by the preferred stockholders. The common
stock is modeled to be a call option with a claim on the business at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OPM uses the
Black-Scholes option-pricing model to value the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that lattice or scenario modeling would
be highly speculative. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
PWERM involves a forward-looking analysis of the possible future outcomes of a company. This method is particularly useful when discrete future outcomes can be predicted at a high confidence level
with a probability distribution. We began using the PWERM as a component of the December&nbsp;31, 2013 valuation as a result of the increasing likelihood of the occurrence of certain discrete
events, including the possibility of an initial public offering and improving market conditions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> September&nbsp;30, 2012 valuation  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We obtained an independent third-party valuation as of September&nbsp;30, 2012 to assist our board of directors in determining the fair value of our
common stock on subsequent grant dates. The September&nbsp;30, 2012 valuation was prepared on a minority, non-marketable interest basis. The aggregate enterprise value was determined using a
combination of the market approach and income approach. In applying the guideline public company method of the market approach, we analyzed the financial performance of our comparable publicly-traded
peers. We utilized multiples of the trailing twelve months revenues and research and </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>76</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>development
expenses of our comparable publicly-traded peers as the valuation metric for this approach, and applied such metrics to our forecasted revenues and research and development expenses.
Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value, and our debt was then subtracted, in order to
determine our equity value under the guideline public company method of the market approach. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under
the income approach, forecasts were prepared for fiscal 2013 through fiscal 2020. The residual value was derived by applying a peer group multiple to the estimated earnings before interest,
taxes, depreciation and amortization, or EBITDA, for the fiscal 2020 forecast. The estimated debt-free cash flow forecasts and residual value were then discounted to a present value. Thereafter, the
current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value, and our debt was then subtracted in order to determine our
equity value under the income approach. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
equity values determined under the market and income approaches were each weighted by 50% as our board believed that it was important to balance the inherent strengths and weaknesses of each
approach. The aggregate equity value was then allocated to the common stock utilizing an OPM with the following assumptions: a time to a liquidity event of 2.0&nbsp;years, a risk-free rate of 0.25%,
dividend yield of 0%, and volatility of 70% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our comparable publicly-traded peers. We then
applied a marketability discount of approximately 38% to the results from the OPM to determine the fair value of the common stock to be $0.22 per share as of September&nbsp;30, 2012. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><I> December&nbsp;31, 2013 valuation  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We obtained an independent third-party valuation as of December&nbsp;31, 2013 to assist our board of directors in determining the fair value of our
common stock on subsequent grant dates. The December&nbsp;31, 2013 valuation was prepared on a minority, non-marketable interest basis for three different scenarios&nbsp;&#151; an IPO
scenario, an M&amp;A scenario, and a liquidation scenario. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
enterprise value for the M&amp;A scenario was determined assuming a sale in 2.25&nbsp;years and was estimated using a combination of the market approach and the income approach. In applying the
guideline public company method of the market approach, we analyzed the financial performance of our comparable publicly listed peers. We utilized multiples of the trailing 12 months revenue and
research and development expenses of our comparable publicly listed peers as the valuation metric for this approach and applied such metrics to our own forecasted revenues and research and development
expenses. Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value in order to determine our equity value
under the guideline public company method of the market approach. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under
the income approach, forecasts were prepared for fiscal 2014 through fiscal 2018. The residual value was derived from an estimated EBITDA multiple derived from the fiscal 2018 forecast. The
estimated debt-free cash flow forecasts and residual value were then discounted to a present value. Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the
valuation date were added to the enterprise value in order to determine our equity value under the income approach. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
equity values determined under the market and income approaches were each weighted by 50% as the board believed at the time that it was important to consider the inherent strengths and weaknesses
of each approach for the M&amp;A scenario fair value. The aggregate equity value was then allocated to the common stock utilizing an OPM with the following assumptions: a time to a liquidity event of
2.25&nbsp;years, a risk-free rate of 0.48%, dividend yield of 0%, and volatility of 70% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our
comparable publicly listed peers. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
enterprise value for the liquidation scenario was based on a 25% discount from the enterprise value determined for the M&amp;A scenario assuming a sale in nine months. The enterprise value for the IPO
scenario </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>77</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>is
based on expected future equity value assuming the completion of an initial public offering in nine months based on current market conditions and outlook and equity values recognized in similar
initial public offerings. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
then utilized the PWERM approach to determine the fair value of our common stock. The per share fair values from the three scenarios were weighted based on our board of directors' estimate of the
probability of the potential future outcomes as follows: 25% to the liquidation scenario, 35% to the IPO scenario, and 40% to the M&amp;A scenario. We then applied a marketability discount of
approximately 23% to the results from the weighting to determine the fair value of the common stock to be $0.41 per share on a minority, non-marketable basis. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Option grants  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table summarizes stock awards granted to our employees since October&nbsp;1, 2012: </FONT></P>


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<TD WIDTH="86pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="69pt" style="font-family:arial;"></TD>
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<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:38pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Grant date

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of<BR>
common shares<BR>
underlying options<BR>
granted </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Exercise<BR>
price per<BR>
common share </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Estimated<BR>
fair value<BR>
per share of<BR>
common stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>November&nbsp;12, 2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,342,938</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>December&nbsp;13, 2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,477,968</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>February&nbsp;20, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,962,879</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>February&nbsp;28, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,734,322</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>April&nbsp;4, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>514,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>January&nbsp;26, 2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>400,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>January&nbsp;27, 2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,318,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>The estimated fair value per share of the common stock in the table above represents the determination by our board of directors of the estimated fair value of
our common stock as of the date of each grant. In establishing this exercise price, at each of these grant dates our board of directors considered input from management, the most recent independent
valuation of our common stock, as well as other factors, including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>changes in management, including the addition of a new Vice President of
Business Development, in the second quarter of fiscal 2013; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Agile's receipt of a Complete Response Letter from the FDA in February 2013
indicating that its Phase&nbsp;3 studies would not be sufficient for approval of AG200-15, in the time frame previously anticipated; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the impact of significant ongoing expenses associated with research and
development associated with our products under development; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>anticipated declines in product revenues from the Clonidine TDS and Fentanyl
TDS products in light of various market conditions; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the continued lack of liquidity of our common stock as a private company; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the absence of any capital raising transactions during this period; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the amount and terms of our outstanding indebtedness; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the rights, preferences and privileges of our preferred stock as compared to
those of our common stock, including the liquidation preferences of our preferred stock; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our progress towards an initial public offering, including discussions with
investment bankers and an organizational meeting in October 2013. The impact of the progress towards an initial public offering was also noted in the change in valuation methodologies from OPM to
PWERM. The change from OPM to PWERM is considered to be significant as such a change will generally increase valuations </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>78</FONT></P>

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<UL>
<UL>

<P style="font-family:arial;"><FONT SIZE=2>because
higher prices tend to be allocated to IPO scenarios than to liquidation scenarios and other scenarios. This is primarily because non-IPO scenarios allocate a large portion of the equity value
to the convertible preferred stock to incorporate higher aggregate liquidation preferences. In the IPO scenario, however, the equity value is allocated pro rata among the shares of common stock and
each series of convertible preferred stock, which causes the common stock to have a higher relative value per share than it would under a non-IPO scenario. </FONT></P>

</UL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>As
a result of the foregoing analyses, our board of directors determined the fair value of our common stock to be at $0.22 per share at each of the grant dates from November 2012 through April 2013
and $0.41 per share at each of the grant dates in January 2014. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
granted options to purchase 1,342,938 shares of our common stock on November&nbsp;12, 2012. These options were granted pursuant to an option exchange program which allowed for the exchange of all
outstanding stock options to acquire common stock granted under our 2002 Stock Option Plan with an exercise price of $0.50 or more per share held by current employees and service providers for new
stock options to be granted under our 2012 Equity Incentive Plan at an exercise price per share of $0.22 and a term of five years. Because the cancelled options were all fully vested as of the option
exchange date, we recognized an incremental charge in the amount of $0.1&nbsp;million in fiscal 2013 as a result of the modification. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Income Taxes  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are subject to income taxes in the United States and in the states of California and Michigan, and we use estimates in determining our provision
for income taxes. We determine our provision for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on temporary differences between the financial
reporting and income tax basis of assets and liabilities using statutory rates. This process requires us to project our current tax liability and estimate our deferred tax assets and liabilities,
including net operating losses and tax credit carryforwards. In assessing the need for a valuation allowance, we considered our recent operating results, future taxable income projections and feasible
tax planning strategies. We have provided a full valuation allowance against our net deferred tax assets at September&nbsp;30, 2012 and 2013 and at December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
account for uncertain tax positions recognized in the financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. We did not have any recorded liabilities for uncertain tax positions as of September&nbsp;30, 2012 or 2013 or December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Newly Adopted Accounting Pronouncements  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to
private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised
accounting standards as other public companies that are not "emerging growth companies." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
May&nbsp;2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No.&nbsp;2011-04, Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards, or IFRS. This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair
value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU&nbsp;2011-04 changes certain fair value measurement principles and
enhances the disclosure requirements particularly for Level&nbsp;III fair value measurements. This pronouncement is effective for reporting periods beginning on or after December&nbsp;15, 2011,
with early adoption prohibited. The adoption of this standard on October&nbsp;1, 2012 did not have an impact on our financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>79</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In
June&nbsp;2011, the FASB issued ASU No.&nbsp;2011-05, Presentation of Comprehensive Income, which requires an entity to present total comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. The adoption of this guidance did not have an impact on our financial statements as our net loss
and comprehensive loss was the same for all periods presented. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
April&nbsp;2011, the FASB issued new accounting guidance relating to the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or
redeem financial assets before their maturity. The guidance addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor
(i.e.,&nbsp;seller) has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance was effective, on a prospective basis, for new transactions or
modifications to existing transactions on October&nbsp;1, 2012. The adoption of this new guidance did not have an impact on our financial statements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
February&nbsp;2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial
reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive
income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is
required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December&nbsp;15, 2012. This new guidance
impacts how we report comprehensive income only, and will have no effect on our results of operations, financial position or liquidity upon its required adoption on October&nbsp;1, 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>80</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  BUSINESS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Overview  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our
pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or self-funded
programs at earlier stages. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. Our partners include The Procter&nbsp;&amp; Gamble Company, or P&amp;G, Par Pharmaceutical, Inc., Teva
Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies. We have the capability to develop and manufacture our own product candidates
and are one of only a few independent companies that develops and manufactures transdermal products for other parties. We believe our proprietary manufacturing processes, know-how and custom equipment
give us a distinct competitive advantage over other pharmaceutical, consumer products and manufacturing companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Transdermal
drug delivery is the transport of drugs through the skin for absorption into the body. We have developed two proprietary technology platforms, Corplex and MicroCor, that we believe offer
significant competitive advantages over existing transdermal approaches. Corplex and MicroCor are designed to be adapted broadly for use in multiple drug categories and indications. We use our Corplex
technology to create advanced transdermal and transmucosal systems for small molecules that utilize less of the active ingredient while achieving the same or better therapeutic effect, that can adhere
well to either wet or dry surfaces, and that can hold additional ingredients required to aid the diffusion of low-solubility molecules through the skin without losing adhesion. Our MicroCor technology
is a biodegradable microstructure system currently in development that enables the painless and convenient delivery of biologics that otherwise must be delivered via injection. Biodegradable
microstructures integrate drug molecules and a biocompatible polymer. With slight external pressure, the microstructures penetrate the outer layers of the skin and dissolve to release the drug for
local or systemic absorption. MicroCor is designed to expand the market for transdermal delivery of biologics, which cannot currently be delivered by other FDA-approved transdermal technologies. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase&nbsp;3
development by our partner Agile. AG200-15 is a combination hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, at levels comparable to low-dose oral
contraceptives, through the skin in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required before marketing a
new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional Phase&nbsp;3 clinical trial
based on this guidance, and intends to supplement its NDA with the results of the additional Phase&nbsp;3 clinical trial. Based on market research conducted by Agile, AG200-15 has the potential to
reach a peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market share of </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>81</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>hormonal
contraceptive prescriptions in the United States currently represents approximately $108&nbsp;million of annual gross sales. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Additional
therapeutic programs utilizing our proprietary technologies are progressing through our pipeline at earlier stages. We have advanced the following Phase&nbsp;2-ready, self-funded programs
through Phase&nbsp;1 pharmacokinetic clinical studies:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>A MicroCor transdermal system designed to deliver parathyroid hormone, or
hPTH(1-34), a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>A Corplex transdermal patch designed to deliver tamsulosin for treating
patients with benign prostate hyperplasia, or BPH, with a controlled dose over several days to reduce side effects compared to currently marketed products. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
are not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table identifies the products we have developed that are marketed by our partners, products in our advanced pipeline and products currently awaiting FDA approval. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><B>
<IMG SRC="g11248.jpg" ALT="CHART" WIDTH="684" HEIGHT="283">
  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Transdermal Drug Delivery Industry  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Patients have benefited from the use of transdermal delivery systems since the first commercially approved transdermal product, ALZA Corporation's
Transderm Scop for the prevention of motion sickness was approved in 1979. To date, we are aware of approximately 20 drugs that have been successfully formulated and approved by the FDA for delivery
in transdermal patches, though the market is growing. According to Datamonitor, the global value of the market for systemic transdermal products, including patches, was approximately
$20&nbsp;billion in 2010 and is expected to grow to approximately $30&nbsp;billion by 2015. We believe this growth is driven by the increasing availability of transdermal systems for important
therapeutic applications and changing disease demographics. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Transdermal
delivery and transmucosal delivery, or delivery through mucous membranes, offer patients more convenient, non-invasive and comfortable methods of drug delivery. The benefits of transdermal
and transmucosal delivery systems over other dosage forms generally include enhancing the efficacy and reducing the side effects of a drug by controlling the rate of delivery and absorption, avoiding
the undesirable breakdown of drugs in the liver associated with gastrointestinal absorption, and improving the level of patient compliance and long-term adherence to therapy. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>82</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>Despite
the benefits of current transdermal delivery products, many key challenges prevent broader use and applicability: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Skin Irritation and Adhesion:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;A
number of patches cause skin irritation and sensitization, often brought on by the inclusion of skin-permeating ingredients necessary to overcome the limitations of traditional patch technologies.
Some patches also experience adhesion failure resulting from excess moisture or heat while worn by the patient, for example when swimming, bathing or during other normal daily activities. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Safety and Drug Loading:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;In order to
enable effective diffusion of sufficient amounts of drug through the skin, many transdermal delivery systems must incorporate large amounts of drug in the patch. After use, a large residual amount of
the drug remains and must be disposed of carefully, especially if the drug is potent or toxic. In some cases, only a small amount of the total drug loaded in a patch is actually delivered into the
bloodstream.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Delivery Limitation:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The
pharmaceutical industry has been unable to formulate certain drugs, especially biologics, for transdermal drug delivery, given the size and complexity of the molecules. These drugs generally are
delivered by injection, which causes pain and often requires administration by a medical professional. In addition, these drugs generally must be refrigerated, require biohazard disposal and present
the risk of accidental needle sticks. Many small molecules are also difficult to deliver transdermally, especially those that are not soluble in water or are unstable in the presence of air or water. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>One
of the greatest opportunities in transdermal drug delivery is the ability to deliver biologics, including vaccines, peptides and proteins without the use of an injection. A number of companies
have attempted to develop technologies to address this challenge, but many have experienced commercial and development failures due to the formulation, scale-up and manufacturing complexities. Some of
these systems have relied upon large, complex and costly devices, usually with external power sources, which adversely impact their usability and reproducibility. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our Solution  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are developing and commercializing advanced transdermal drug delivery products that are intended to expand the number and types of drugs that can
be delivered transdermally. We believe our technologies can be applied to improve the therapeutic value of many drugs by controlling the levels of drug delivered over a longer period of time. They are
also designed to eliminate the need for injections of certain drugs and to improve adhesion and skin irritation profiles. Our technologies also allow us to create cost-effective products, especially
by eliminating the need for complex devices and refrigeration throughout the supply chain. Our two proprietary platforms, Corplex and MicroCor, separately address some of the primary shortcomings of
traditional transdermal drug delivery. We believe our track record within the industry demonstrates our ability to develop commercially successful products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Corplex Technology  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Corplex is a novel technology incorporating combinations of materials that utilize the properties of both traditional pressure-sensitive adhesives, or
PSAs, as well as bioadhesives, to enable the transdermal delivery of small molecules. Corplex encompasses combinations and blends of polymers to provide a range of properties that improve adhesion and
delivery of active ingredients that may otherwise be difficult to formulate for transdermal delivery. We use our Corplex technology in the Crest Whitestrips line of products and in our clinical stage
Corplex Tamsulosin, as well as in other products in development. Additionally, we have one product utilizing Corplex technology for which an ANDA has been filed. Our Corplex transdermal delivery
systems
provide advanced custom solutions for small molecules and feature the following benefits: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Flexibility:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Corplex is adaptable
and provides the ability to formulate adhesives to complement a drug's unique properties, enabling new drug dosage forms and delivery options. As a result, Corplex systems can be formulated in several
dosage forms ranging from liquids (sprays, film-forming liquids), to semi-solids (gels, creams and ointments) to solids (powders, particles, dry and wet films, and patches). </FONT></DD></DL>
</UL>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Ease-of-Use:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our Corplex systems are
designed to improve patient compliance by being easy to use, self-administered and discreet. In addition, Corplex products are suitable for long-term skin contact and are designed to be easily removed
with minimal damage to skin and without leaving a residue. Corplex incorporates unique compositions and blends of polymers to provide a range of hydrophilic to hydrophobic properties, enabling
excellent adhesion to both dry and wet surfaces with a variety of wear times, ranging from seconds to up to seven days.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Compatibility:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Corplex can
incorporate liquid-based components that improve stability and diffusion of the drug without compromising adhesion. As a result, Corplex is compatible with many chemically diverse drugs, including
compounds that are highly soluble or highly insoluble in water, as well as a wide range of solubilizing agents and enhancers that enable the delivery of these molecules, thereby expanding the universe
of drugs that can be delivered transdermally.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Efficient and Controlled Drug
Delivery:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Because Corplex enables drugs to diffuse more easily through the skin, we can design Corplex products to require less drug to
achieve the desired therapeutic result. Patch sizes can also be smaller than conventional patches, reducing costs and improving the user experience. Additionally, Corplex allows for development of
products with drug delivery profiles ranging from immediate release to sustained release or a combination of fast-acting and long-lasting types of release.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Improved Therapeutic Profile:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;By
achieving a steady dosage level, Corplex systems are designed to minimize side effects that otherwise result from peak concentrations of the drug when delivered with oral or other dosage forms.
Corplex allows us to minimize the use of ingredients that can cause skin irritation and sensitization, two of the most common side effects of transdermal drug delivery. In our Corplex systems, we use
materials that are well established for use in medical products by the FDA. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
believe the combination of these benefits make Corplex well-suited for the development of a variety of healthcare products that require adhesive properties, including prescription transdermal drug
products, personal care, oral care, wound care, medical device and diagnostics products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> MicroCor Technology  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>MicroCor is a biodegradable microstructure patch technology that we are developing to enable transdermal delivery of biologics, in a disruptive
platform that reduces the need for needles and syringes and enables global distribution of biologics without requiring refrigeration. Because biologics cannot diffuse through the skin due to their
size, some mechanism is required to introduce these molecules beyond the outer layer of the skin, or stratum corneum, where they can be absorbed into the body. The further a delivery system penetrates
beyond the stratum corneum, the more likely it is to cause pain, bleeding and bruising. By integrating active ingredients directly into arrays of biodegradable microstructures, our MicroCor technology
is designed to penetrate only the stratum corneum to release the drug for local or systemic absorption, while eliminating the pain, bleeding and bruising that can be caused by needles and other active
delivery devices. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
believe MicroCor will offer the following advantages over other delivery technologies in development for biologics: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Minimal Discomfort:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our MicroCor
systems feature an array of microstructures that penetrate the stratum corneum to only a few hundred microns in depth, deep enough for effective delivery without causing pain, bruising or bleeding. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Dose Sparing:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;MicroCor needles are
biodegradable and dissolve in the skin once the system is applied. In our clinical studies to date, we determined that over 90% of the drug contained in a single use of a MicroCor system was delivered
into the skin each time the system was administered. We expect our MicroCor systems to reduce drug waste and the costs associated with the excess drug that may be required in less efficient delivery
technologies.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Thermally Stable:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our MicroCor
systems do not contain moisture, and therefore are designed to be room temperature stable, enabling both stockpiling and worldwide delivery without refrigeration, thereby minimizing drug or product
spoilage. </FONT></DD></DL>
</UL>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>No Biohazard Disposal:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Because
MicroCor needles completely dissolve in the skin, no sharps remain after use. We believe this feature will allow disposal of the system in a traditional trash receptacle without risk of accidental
needle sticks or abuse associated with residual drug left in the delivery system.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Ease-of-Use:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;MicroCor products are
designed to be self-administered, fully-integrated, single-use systems that are worn for only a few minutes. Unlike other delivery systems, MicroCor requires no additional parts, electrical power or
complex external enabling devices to effectively deliver the drug or product.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Cost-Effective:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;In addition to the
cost savings associated with dose sparing and thermal stability, MicroCor's fundamental design and our proprietary molding process also minimize costs associated with manufacturing MicroCor systems.
Our process allows us to reduce waste of active ingredients used in manufacturing, as compared to needle coating processes used by other delivery technologies for large molecules. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>The
figure below depicts the MicroCor technology: </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><B>
<IMG SRC="g124703.jpg" ALT="DIAGRAM" WIDTH="684" HEIGHT="300">
  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Our Strategy  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We believe our balanced portfolio strategy enables us to capitalize on our proven strengths and technological advantages while diversifying risk and
limiting our financial exposure. The key components of our strategy are to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Expand our existing revenue base by
commercializing our advanced pipeline.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to work with our existing partners to gain regulatory approval and commercially launch
the AG200-15 contraceptive patch with Agile and a motion sickness patch and an urology patch with Teva. We also plan to develop, launch and manufacture new oral care products and certain other new
products outside of oral care through our partnership with P&amp;G.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Advance the development of proprietary products
already in development.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We plan to advance the development of MicroCor hPTH(1-34) and Corplex Tamsulosin, and selectively work with new
partners to advance certain products in our earlier stage pipeline. We intend to focus primarily on products that incorporate FDA-approved drugs, thereby allowing us to take advantage of the 505(b)(2)
regulatory pathway. </FONT></DD></DL>
</UL>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Enter into co-development and commercialization
agreements with new and existing partners for new products.</B></FONT><FONT SIZE=2> We are actively evaluating potential new product candidates that leverage our proprietary technologies. Additionally,
we plan to transition our MicroCor technology feasibility programs with leading pharmaceutical partners into co-development partnerships to develop and commercialize transdermal system-based vaccines
and proprietary biologic products.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Expand our MicroCor manufacturing
capabilities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to further develop MicroCor manufacturing capabilities to commercial scale, enabling late-stage development,
launch and commercial production of multiple new high-margin biologic products.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><B>Further leverage our core competencies and
proprietary technologies.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;We intend to apply our technologies to create and develop a portfolio of new transdermal products in areas of
significant unmet need&nbsp;&#151; in particular, chronic, degenerative and progressive conditions affecting the brain and central nervous system, such as Alzheimer's and Parkinson's
diseases. We are focusing our self-funded new product efforts on products that we could commercialize with a relatively small specialty sales force. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Strategic Relationships  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our partners are critical to our success. We currently have strategic relationships with the following companies, as well as earlier-stage
relationships with a number of other companies. This diversified mix of partnerships provides multiple potential sources of revenue growth in the future. In each of fiscal 2012 and 2013, we derived
nearly all of our revenues from our partners P&amp;G, Teva, Actavis and Par. In fiscal 2012, we received $7.9&nbsp;million of our revenues from P&amp;G, $11.4&nbsp;million from Teva, and
$18.1&nbsp;million from Actavis, or 18%, 26%, and 42%, respectively. In fiscal 2013, we received $11.8&nbsp;million of our revenues from P&amp;G, $16.7&nbsp;million from Teva, and
$16.6&nbsp;million from Par, or 23%, 33%, and 33%, respectively. In the three months ended December&nbsp;31, 2013, we received $3.0&nbsp;million of our revenues from P&amp;G, $3.7&nbsp;million
from Teva, and $3.2&nbsp;million from Par, or 28%, 35%, and 31%, respectively. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> The Procter&nbsp;&amp; Gamble Company  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In June&nbsp;2005, we entered into a multi-faceted strategic arrangement with P&amp;G, one of the largest consumer products companies in the world. Our
relationship includes a worldwide license to P&amp;G for the use of our Corplex technology in products in the general field of consumer products. This field does not include rights in the prescription
drug, foot care and wound care fields. P&amp;G paid us fees for the license, plus additional future milestone payments for products that we develop for P&amp;G. In addition, we entered into a long term joint
development agreement under which we perform numerous research and development activities for P&amp;G based upon agreed-upon statements of work and budgets. We also have a commercial supply agreement in
place, under which we are responsible for the production and supply to P&amp;G of four oral care products. Our supply agreement with P&amp;G was previously extended for a three-year term to the end of 2013
and was amended recently to extend through July 2014. We are in the process of negotiating an additional extension, which we expect to have completed by July&nbsp;2014. The supply agreement can be
expanded to include any additional
products that move into commercial supply. We believe that we have unique capabilities and know-how related to the manufacture of Corplex-based Crest Whitestrips, which would be difficult for another
party to duplicate. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have developed and commercialized four oral care products for P&amp;G sold under the brand name Crest Whitestrips. The four products are Advanced Vivid, Professional Effects, One Hour Express and
Flex-Fit. We have developed all of these products under the joint development agreement and are currently supplying the product in an intermediate, not final packaging, stage to P&amp;G. In addition, we
have other products in development for the oral care business at P&amp;G as well as certain products in development for other businesses at P&amp;G. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
addition to the license and joint development transactions, in 2005 we also acquired P&amp;G's microneedles patent portfolio and know-how. In exchange for the assignment of the patent portfolio of 51
patents and </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>patent
applications, we issued to P&amp;G 1,266,830 shares of our common stock and granted P&amp;G certain co-sale and board observer rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition to contract research and development and product revenues, from the inception of our collaborations with P&amp;G, we have received a total of $3.2&nbsp;million in license fees and
$2.0&nbsp;million in milestone payments from P&amp;G. Pursuant to programs currently underway, we may be eligible for up to $5.0&nbsp;million in future milestone payments. None of our arrangements
with P&amp;G require a royalty to be paid to us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Teva Pharmaceuticals,&nbsp;USA Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2004, we entered into a development, manufacturing and commercialization agreement with Barr Laboratories,&nbsp;Inc. for four generic transdermal
drug products. We entered into three separate agreements with Barr, one in 2006 and two in 2007, to develop and commercialize additional ANDA transdermal patch products. In 2008, Teva
Pharmaceuticals,&nbsp;Inc. acquired Barr. Following this acquisition and its review of resource allocations and potential conflicts, Teva continued three of these development programs. One of these
programs has resulted in an approved product marketed as Clonidine TDS, and the other two, a motion sickness patch and a urology patch, are the subject of pending ANDAs. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under
our agreements with Teva, we are the exclusive suppliers of the products that are the subject of each development program. We receive compensation for developing the product, plus a
manufacturing margin,
expressed as a margin above costs, and a profit share based on Teva's net profits on the products. Teva has an exclusive license to use certain of our intellectual property to the extent necessary to
commercialize, make, use or sell the ANDA product. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Teva product contracts extend for ten years beyond the respective product launch dates, with provisions for automatic annual renewal thereafter. The contracts may be terminated, with three months
notice before the end of a renewal period, or for uncured material breach, bankruptcy, or certain conditions preceding ANDA filing. If Teva were to terminate the agreement, it would be required to
obtain FDA approval for an alternate manufacturing site before it could obtain additional supply of the product, a process that generally takes two years or more. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Clonidine
TDS was the first product under our partnership with Teva to be approved by the FDA. Teva launched the product in 2010, and currently has the largest share of the clonidine patch market. We
also have two additional products partnered with Teva awaiting FDA approval, a motion sickness patch and a urology patch, and are in negotiations to add three additional ANDA products to our portfolio
of Teva-partnered products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition to contract research and development revenues and product revenues, from the inception of our collaborations with Teva and its predecessor, we have received no license fees and
$0.2&nbsp;million in milestone payments. Under our current agreements, we are not eligible for additional milestone payments. We receive a profit share equal to a low tens percentage of Teva's net
sales of Clonidine TDS, after deducting certain selling-related expenses. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Par Pharmaceutical, Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2002, we entered into a product development, collaboration and license agreement and in 2003 we entered into a manufacturing and supply agreement
with Abrika LLLP for a generic equivalent of Duragesic, a fentanyl transdermal product marketed by Johnson&nbsp;&amp; Johnson. In 2007, Abrika was acquired by Actavis,&nbsp;Inc. In 2007, the FDA
approved and Actavis launched our Fentanyl TDS product. In 2012, Par Pharmaceuticals, or Par, acquired the fentanyl business from Actavis, and Par currently markets Fentanyl TDS as our partner. Under
the manufacturing and supply agreement, we are the exclusive supplier of Fentanyl TDS to Par. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Abrika
and Actavis paid us for the development of Fentanyl TDS and we also receive a manufacturing margin and a royalty on net sales of the products by Par. The 2002 agreement may be terminated for
uncured material breach, bankruptcy, or certain conditions preceding ANDA filing. If Par were to terminate </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>the
agreement, it would be required to obtain FDA approval for an alternate manufacturing site before it could obtain additional supply of the product, a process that generally takes two years or
more. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition to contract research and development revenues and product revenues, from the inception of our collaborations with Par and its predecessors, we have received no license fees and
$0.5&nbsp;million in milestone payments from Par. Under our current agreements, we are not eligible for additional milestone payments. We receive a royalty equal to a mid-single digit percentage of
Par's net sales of Fentanyl TDS. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Agile Therapeutics, Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2006, we entered into a development, license and commercialization agreement with Agile Therapeutics,&nbsp;Inc., a privately-owned company that
focuses on development of women's healthcare products. As part of our relationship, we are the exclusive supplier of the AG200-15 combined hormonal contraceptive patch, which was designed by Agile
using its formulation technology and is proprietary to Agile. Under our agreement with Agile, we have performed substantial work, funded by Agile, on the process development and scale-up of the
manufacturing process for AG200-15, and we have manufactured the product for each of Agile's clinical trials. Our agreement also includes an additional Agile product, AG890, which is a progestin-only
contraceptive patch in Phase&nbsp;2 of clinical development. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
anticipation of the approval and commercial launch of the AG200-15 product, we have worked in partnership with Agile to prepare facilities and equipment at our Grand Rapids manufacturing site for
commercial production of the product. The primary production equipment specifically designed for manufacture of this product has been purchased and is owned by Agile and we are responsible for
operating and maintaining that equipment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
exclusive right to manufacture AG200-15 and AG890 extends until we have commercially produced an agreed-upon quantity of patches, currently projected to occur no earlier than five years following
commercial launch of AG200-15. The contract may be terminated for uncured material breach. Following the end of the exclusivity period, if Agile were to seek a second source of supply, Agile would be
required to obtain FDA approval for an additional manufacturing site, a process that generally takes two years or more, and make substantial investments in new facilities and equipment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition to contract research and development revenues, from the inception of our collaborations with Agile, we have received no license fees and $3.5&nbsp;million in milestone payments from
Agile. We are not currently eligible for any future milestone payments, and the terms of our supply agreement do not entitle us to receive a royalty. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Products and Pipeline  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have six commercial products and three products awaiting FDA approval, and we are developing three additional undisclosed prescription drug
products with partners. We have seven ongoing feasibility agreements with four major pharmaceutical companies involving our MicroCor technology, and are currently in active discussions with four other
companies for additional feasibility projects. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Marketed Products:  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In fiscal 2013, we received a total of $38.6&nbsp;million in product revenues from our three marketed products: $13.2&nbsp;million from Clonidine
TDS, $15.6&nbsp;million from Fentanyl TDS, and $9.8&nbsp;million from Crest Whitestrips, representing 34%, 40% and 25% of total product revenues, respectively. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B>Clonidine TDS</B></FONT><FONT SIZE=2> is a treatment for hypertension that we developed under an ANDA as a generic version of the branded drug known as Catapres TTS. Clonidine
TDS was launched in 2010 and is marketed by Teva and manufactured by us exclusively for Teva. According to Symphony Health Solutions, an independent market research firm, the U.S. generic clonidine
patch market was approximately $230&nbsp;million in 2012, supplied primarily by two companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Fentanyl TDS,</B></FONT><FONT SIZE=2> is a treatment for management of chronic pain, including cancer-related pain, under specified conditions. We developed this product for
approval under an ANDA as a generic version of the </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>branded
product known as Duragesic. Our Fentanyl TDS was approved in 2007 and is currently marketed by Par and manufactured by us exclusively for Par. According to Symphony Health Solutions, the U.S.
generic fentanyl patch market was greater than $1&nbsp;billion in 2012 supplied by seven companies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Crest Whitestrips</B></FONT><FONT SIZE=2> are a series of four products for oral care that we co-developed with P&amp;G as part of a broad relationship relating to consumer products.
These products utilize our Corplex polymer technology and are sold under the brands Advanced Vivid, Professional Effects, One Hour Express and Flex-Fit. We are the sole supplier of
the oral care system marketed as Crest Whitestrips for P&amp;G. The market for teeth whitening products was approximately $580&nbsp;million in 2012, of which P&amp;G has the majority market share. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Advanced Pipeline Products:  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>AG200-15</B></FONT><FONT SIZE=2> is a combination hormonal contraceptive patch that contains the active ingredients ethinyl
estradiol (an estrogen) and levonorgestrel (a progestin), both of which have an established history of efficacy and safety in currently marketed combination contraceptives. AG200-15 is designed to
deliver both hormones at levels comparable to low-dose oral contraceptives. By delivering these active ingredients over seven days, this product is designed to promote enhanced compliance by patients
with a convenient, easy-to-use format. The patch is applied once weekly for three weeks, followed by a week without a patch. The product, which was designed by Agile and for which we have done process
development and manufacturing, will, if approved, be packaged with three patches per carton to provide a cycle (month) of therapy. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
current U.S. market for combination hormonal contraceptive products is approximately $4.2&nbsp;billion. Historically, the growth of prescriptions in this market has been driven by the
introduction of new branded products, and approximately half of the total market sales are represented by only eight branded products. This market includes oral dosage forms as well as other non-oral
products, such as a vaginal ring and a transdermal system. An earlier-generation transdermal contraceptive product known as Ortho Evra, launched in 2002 by Johnson&nbsp;&amp; Johnson, was the most
successful product launch in the history of the U.S. contraceptive market, and rapidly gained annual sales levels of nearly $400&nbsp;million by 2004. However, sales of that product declined rapidly
following the emergence of safety concerns that were associated with the relatively high levels of estrogen delivered by Ortho Evra. Based on the market experience of other non-oral dosage forms,
including the Ortho Evra product, we believe there is a continuing demand for an innovative transdermal contraceptive patch that can provide convenience in a low-dose transdermal format. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Agile
has conducted multiple clinical studies of AG200-15, including pharmacokinetic studies and Phase&nbsp;3 efficacy and safety studies. In a pharmacokinetic study comparing AG200-15 to an oral
contraceptive, Agile demonstrated that AG200-15 delivers a dose that results in estrogen exposure similar to low-dose oral contraceptives. Although Agile did not conduct a head-to-head study with
Ortho Evra, this level of estrogen exposure is about one-half the estimated daily dose described in pharmacokinetic studies of Ortho Evra, the first FDA-approved transdermal contraceptive. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Agile
also conducted two Phase&nbsp;3 studies, involving approximately 1,900 patients, to evaluate the safety and efficacy of AG200-15. Each of these studies included an active comparator arm with
an oral contraceptive. The results of these studies demonstrated that the AG200-15 product was well-tolerated, with levels of adverse events comparable to those of oral contraceptives. In these
studies, the product had a favorable adhesion profile, and subjects had a higher rate of compliance when using the patch compared with the group using oral contraceptives. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
the Phase&nbsp;3 trials the primary measure of efficacy was the Pearl Index, a measure of the rate of unintended pregnancies experienced by women in the study. The Pearl Index levels for both the
AG200-15 patch and oral contraceptive control arms in the Agile Phase&nbsp;3 studies were higher than those in studies conducted on products previously approved by the FDA. The results for both the
patch and oral contraceptive control arms in the Agile Phase&nbsp;3 studies may have been affected by the inclusion of relatively high proportions of first-time contraceptive users and other
population groups that have, in historical clinical studies, tended to have higher rates of pregnancies than the general population. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>In
February 2013, Agile received a Complete Response Letter from the FDA, indicating that the results from the completed Phase&nbsp;3 studies would not be sufficient for approval, and proposing that
Agile conduct an additional Phase&nbsp;3 study. Among the concerns expressed in the letter were the Pearl Index values seen in the studies. Specifically, the FDA indicated the Pearl Index values in
the studies (in both the subjects using the AG200-15 patch and the control arm using oral contraceptives) were higher than seen in clinical trials used for registration of other approved hormonal
contraceptives. Agile believes that the results for both the patch and oral contraceptive control arms in the Phase&nbsp;3 trials were affected, in part, by the study population, which differed in
composition from the population enrolled in trials of previously approved combination hormonal contraceptive, or CHC. Agile believes it enrolled a disproportionately high number of new users and
minorities in both arms of its study, as compared to other CHC clinical trials. Notably, there were higher incidences of non-compliance and loss to follow-up in new users compared with experienced
users in the Agile study. These factors may have contributed to the high rates of noncompliance in Agile's trials, which often correlates with a higher contraceptive failure rate. The FDA recommended
that Agile conduct an additional Phase&nbsp;3 trial with a simplified clinical trial design. The Complete Response Letter also requested improvements in the study conduct, including site monitoring
and data collection procedures, and additional information on inprocess controls relating to the patch, a drug master file that was referenced in the NDA, and product release specifications. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Agile
has met with the FDA and received further guidance on requirements for its application. Based on these discussions, Agile plans to initiate an additional study in the first half of 2014, which
it anticipates completing by the end of 2015. This study will be designed to address key issues that arose in the previous studies, including enhanced patient enrollment criteria and processes, and
close monitoring of compliance with the study protocol. Based on FDA guidance toward a simplified study design, Agile plans to design and conduct the new clinical study to be a single-arm,
non-comparative trial, without an oral contraceptive comparator, expected to cover up to 13 ovulation cycles per subject. The time for selection and training of study sites, and for selection,
enrollment and training of subjects will be extended and monitored by study coordinators, and various technologies will be employed to provide reminders and collect information on a real-time basis.
To manage the study, Agile recently hired a new chief medical officer, and it plans to retain a new clinical research organization that is experienced in contraceptive clinical studies. There can be
no assurance that this additional study will be successful in demonstrating efficacy and safety of the product. However, assuming successful completion of this additional study, Agile would plan to
submit a supplement to its NDA in early 2016. Assuming a six-month review by the FDA, approval would occur late in 2016. Our marketing partner intends to launch the product as soon as possible
following FDA approval. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
are working with Agile to prepare for the additional Phase&nbsp;3 study, including the manufacture of product for use in the study. We have also completed a substantial build-out of our
facilities in Grand Rapids, Michigan, and have installed over $10.0&nbsp;million of equipment purchased by Agile to accommodate the commercial production of AG200-15 if it is approved and launched. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
fiscal 2013, we received a total of $4.3&nbsp;million in contract research and development revenues from Agile, representing 40% of our total contract research and development revenues. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B>MicroCor hPTH(1-34)</B></FONT><FONT SIZE=2> is a transdermal system designed to use our MicroCor technology to provide simplified delivery of parathyroid hormone, the active
ingredient of Forteo, an injectable product marketed by Eli Lilly and Company for the treatment of severe osteoporosis. hPTH(1-34) is a shortened version of the naturally occurring parathyroid hormone
that promotes bone growth. Forteo achieves annual worldwide sales of greater than $1&nbsp;billion despite significant patient compliance and convenience challenges, including daily subcutaneous
injection and refrigerated storage. According to Datamonitor, the compliance rate of patients being treated with injectable osteoporosis treatment is approximately 50%. With a simple one-step
application process, short wear time and a favorable pharmacokinetic profile, MicroCor hPTH(1-34) represents, if approved, an opportunity to effectively deliver an improved anabolic therapy and
increase patient compliance in the osteoporosis market. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>The
global osteoporosis market represents a significant opportunity, with growing revenues that are estimated to reach greater than $5.2&nbsp;billion in the seven major market countries by 2021
according to Datamonitor. This growth is driven by both general population aging and the anticipated launches of several premium priced market entrants in the coming years. Current treatment is
focused on the use of bisphosphonates as the first-line approach. However, these agents provide only anti-resorptive activity and are associated with significant gastrointestinal side effects and
other adverse outcomes. Treatment with PTH is the only treatment approach that promotes bone growth currently available for the treatment of osteoporosis. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have completed a Phase&nbsp;1 safety and pharmacokinetic study of MicroCor hPTH(1-34) in healthy women. In this study, MicroCor hPTH(1-34) was shown to be safe and well tolerated with comparable
drug exposure to that achieved with the commercially available subcutaneous injections. The product achieved rapid systemic delivery of hPTH with a short wear time of five minutes. On the basis of
these results, we are planning further clinical development of MicroCor hPTH(1-34) under a 505(b)(2) regulatory pathway that leverages existing hPTH safety and efficacy data from the approved dosage
form of parathyroid hormone. We anticipate that the clinical plan will consist of a Phase&nbsp;2a pharmacokinetic study, which we plan to commence in the second half of 2014. This will be followed
by a six-month Phase&nbsp;2b efficacy/safety and dose finding study in osteoporosis patients and a one-year Phase&nbsp;3 trial, each measuring change in bone mineral density as a primary endpoint. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>MicroCor
hPTH(1-34) has demonstrated a favorable safety profile in multiple nonclinical biocompatibility and microbial studies. The product has also demonstrated favorable room temperature stability.
We believe MicroCor hPTH(1-34) is the only integrated, single step application PTH transdermal product currently in clinical development, and is well-positioned for this growing market. We have
self-funded this program since inception, and are planning to advance it into Phase&nbsp;2 clinical trials with proceeds from this offering. We expect to partner with a company active in bone
health, women's health or endocrinology to distribute and sell the product, if approved. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have in place pilot facilities for manufacture of MicroCor products for early clinical testing. We also have extensive experience with process development and commercial scale-up for transdermal
products. In preparation for Phase&nbsp;3 clinical trials of MicroCor hPTH(1-34), we have developed an aseptic manufacturing plan for large scale manufacturing and we have designed the manufacturing
process for MicroCor systems to be streamlined, robust and cost effective. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Corplex Tamsulosin</B></FONT><FONT SIZE=2> is a transdermal patch designed to use our Corplex technology to provide controlled delivery of tamsulosin, the active ingredient in
the leading once-daily capsule product for treatment of benign prostatic hyperplasia, or BPH, marketed under the brand name Flomax. Tamsulosin is a drug that relaxes smooth muscle cells in the
prostate and bladder neck, thereby decreasing the blockage of urine flow that occurs with an enlarged prostate. The oral dosage form of tamsulosin was first launched in 1993 and, according to
Datamonitor, worldwide sales in 2012 neared $550&nbsp;million. By providing a controlled and relatively steady level of drug over an extended time, Corplex Tamsulosin is intended to alleviate the
side effects associated with peak blood concentrations of the drug in its current oral formulation and to provide a consistent level of efficacy. Several companies have attempted to formulate
tamsulosin into a patch, but have not succeeded due to the low solubility properties of this drug. Our completed Phase&nbsp;1 pharmacokinetic study in healthy subjects demonstrated that Corplex
Tamsulosin enabled delivery of the drug at blood concentration levels equivalent to the effective levels provided with the oral dosage form, but with an extended and controlled release profile. If
successfully commercialized, Corplex Tamsulosin could be the only patch available for tamsulosin. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
expect Corplex Tamsulosin to offer the following potential advantages over the oral tamsulosin product: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Enhanced safety and efficacy:</I></FONT><FONT SIZE=2>
&nbsp;&nbsp;Corplex Tamsulosin is designed to provide a relatively steady dosage over multiple days. Studies have shown that a steady 24-hour pharmacokinetic profile for tamsulosin is associated
with better control of nocturia, or frequent night time urination, and reduced cardiovascular side effects. </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Enhanced convenience and
compliance:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Patients may apply Corplex Tamsulosin once or twice weekly instead of a once daily oral dose. In addition, oral dosage forms
must be taken approximately 30 minutes following the same meal every day because of the effects of food on tamsulosin's pharmacokinetics.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Ease of use:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;We believe the
predominantly elderly and growing BPH population would benefit from a transdermal system because many older patients have difficulty swallowing oral dosage forms. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
have completed a Phase&nbsp;1 safety and pharmacokinetic study of Corplex Tamsulosin in healthy men. In this study, Corplex Tamsulosin demonstrated a favorable safety profile, was well-tolerated
and the drug exposure of the once-weekly patch was comparable to daily oral Flomax capsules. Planning is underway for further clinical development under a 505(b)(2) regulatory pathway that leverages
existing tamsulosin safety and efficacy data of the marketed product. We anticipate that the clinical plan will consist of a one month Phase&nbsp;2 efficacy/safety and dose finding study in patients
and a three month (with open label extension of six to nine months) Phase&nbsp;3 trial in
patients, using an American Urology Association symptom score or International Prostrate Symptom Score as the primary end point. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have self-funded this program since inception, and are planning to advance it into Phase&nbsp;2 with proceeds from this offering in the first half of 2015. We expect to partner this product with
a company with marketing experience and capability in the urology field. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Products Awaiting Approval:  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Motion Sickness Patch.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have developed a generic transdermal product for the prevention of nausea and vomiting associated with motion sickness. We developed a
three-day patch for Teva under an ANDA, and Teva is currently awaiting FDA approval. We have completed all of the development, scale-up and clinical activities and expect this product to launch in
2014, if approved. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
fiscal 2013, we received a total of $2.9&nbsp;million in contract research and development revenues from Teva for this product, representing 27% of our total contract research and development
revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Urology Patch.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have developed a generic transdermal product for treatment of a urologic condition. We developed a three-to-four-day patch for Teva under an ANDA,
and Teva is currently awaiting FDA approval. We have completed all of the required development, scale-up and clinical activities and expect this product, if approved, to launch in 2015, pursuant to
the terms of a patent settlement agreement between Teva and Actavis. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
fiscal 2013, we received a total of $0.7&nbsp;million in contract research and development revenues from Teva for this product, representing 6% of our total contract research and development
revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Development Pipeline Products:  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Alzheimer's Disease (Donepezil and Memantine)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Alzheimer's disease, the leading cause of dementia, is characterized by the progressive loss of memory, thinking and ability to perform activities of
daily living, such as bathing, feeding and self-care, as well as significant behavioral disturbances such as agitation, aggression, delusions and hallucinations. According to industry sources,
Alzheimer's disease currently affects approximately 5.3&nbsp;million people in the United States, including as many as 13% of people aged 65 and older and approximately 50% of those 85 and older.
Total annual expenditures on caring for patients with Alzheimer's disease in the United States alone exceeds $200&nbsp;billion. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>According
to Datamonitor, the worldwide market for Alzheimer's disease therapies currently exceeds $3.9&nbsp;billion, with the largest selling products being the cholinesterase inhibitor, Aricept,
and the NMDA-receptor antagonist, Namenda. By 2015, both of these branded Alzheimer's drugs will lose patent protection in the United States and Europe. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>92</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>We
have initiated development work on advanced transdermal patches for the treatment of Alzheimer's disease incorporating proven and approved molecules, one of which is the active ingredient in
Aricept, under a 505(b)(2) regulatory pathway, which we believe will allow for reduced nonclinical and clinical study cost and time. The products are designed to decrease the side effects of the
current therapies, such as nausea, which may improve patient adherence and compliance. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Parkinson's Disease (Ropinerole and Pramipexole)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Parkinson's disease is the second most common neurodegenerative disorder after Alzheimer's disease. Approximately one million people in the United
States and from four to six million people worldwide suffer from this disease, which is commonly treated with dopamine replacement therapies such as levodopa and dopamine agonists, which are molecules
that mimic the action of dopamine. According to PharmaCircle, an industry database, the current Parkinson's disease market is approximately $3.0&nbsp;billion globally. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
are developing advanced therapies incorporating proven and approved molecules under a 505(b)(2) regulatory pathway, which we believe will allow for reduced nonclinical and clinical study cost and
time. Because Parkinson's patients have trouble swallowing pills, we believe a transdermal or film product would address an unmet need recognized by patients and physicians alike. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>MicroCor Feasibility Programs</B></FONT><FONT SIZE=2> include seven partner-funded feasibility programs that we have completed or are currently in progress. Additional programs
are in the planning process. In the programs performed to date, we have collaborated with leading biopharmaceutical companies to formulate their proprietary active molecules in our MicroCor technology
and demonstrate delivery of the drug in animal models. The active molecules in these studies have been primarily large biologic molecules, including vaccines, peptides, proteins and monoclonal
antibodies. After completing a number of these programs successfully, we are now advancing certain programs into later stages of development, including new vaccine and therapeutic applications. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B>Future Pipeline Programs</B></FONT><FONT SIZE=2> include three additional undisclosed ANDAs that have been partnered with two pharmaceutical companies. Two of the products are in
development and we expect the ANDAs to be filed in 2015, while the third product is entering clinical trials in the first quarter of 2014. We also are developing skin care and cosmetics products
utilizing our Corplex and MicroCor technologies for our partners. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
fiscal 2013, we received an aggregate total of $2.8&nbsp;million in contract research and development revenues from our collaboration partners for these programs, representing 26% of our total
contract research and development revenues. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Research and Development  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our research and development operations are located in a 25,000 square foot laboratory and office facility in Menlo Park, California that is
configured for transdermal and transmucosal systems development. We conduct proprietary drug delivery research utilizing our extensive experience in polymer blending, formulations and system
engineering to produce innovative products with high drug delivery efficiency. Our research and development team has full early product development capabilities, including:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Formulation, system design and engineering; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Analytical method development and validations; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Prototyping and pilot manufacturing; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Early stage quality assurance and quality control; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Nonclinical and early stage clinical development; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Regulatory affairs. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, our Menlo Park site operates a pilot facility capable of making products in accordance with cGMP requirements for anticipated Phase&nbsp;1 and Phase&nbsp;2 clinical studies. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>Our
Menlo Park research and development team includes 37 scientists and engineers, some of whom were original inventors of transdermal patches. We perform the formulation system design, analytical
method development and prototyping for all of our transdermal products. Our research and development team works in collaboration with the process scale-up team in our manufacturing operations early in
the product development cycle. This early coordination helps assure streamlined technology transfer success in the final scale-up and commercial manufacture of each product, leading to more robust
development programs and greater manufacturing efficiencies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Manufacturing  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our commercial manufacturing facilities are located in Grand Rapids, Michigan in three buildings comprising approximately 200,000 square feet. We have
a full range of development and manufacturing capabilities, from complete process development and scale-up services to commercial manufacture. We have made significant investments in our manufacturing
technology that allow us to automate many of our processes and maximize the productivity of our labor force. We employ multiple manufacturing techniques, including solvent cast and extrusion
manufacturing processes that minimize the thickness of our patches and reduce the costs of our products. Solvent-casting is well-suited for manufacturing films containing heat-sensitive molecules
because the temperatures required to remove the solvents are relatively low compared to those needed for a hot-melt extrusion process. Hot-melt extrusion is not suitable for ingredients that could be
thermally degraded in the process, but is environmentally friendly, cost effective and more flexible than solvent cast-only processes. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Our
manufacturing platform includes:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Process development through commercial product manufacture, including final
finishing and cartoning; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Multiple-use equipment providing flexibility for small volume jobs to
dedicated equipment for large volume production; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>High accuracy coating for pressure sensitive adhesives, acrylics and
polyisobutylene, or PIB; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Automated solvent casting and extrusion capabilities, including both twin
screw and mixer extrusion; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Automated high-speed, high-accuracy die cutting, and integrated die cutting
and pouching; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Physical testing and analytical method capabilities; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>The licensing required to handle scheduled drugs and compounds requiring
special handling; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>The ability to manufacture drug and device combination products with high
accuracy assembly for multiple and complex components; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Manufacturing capabilities for proprietary MicroCor biodegradable
microstructures, including specialty coating, curing, drying and assembly processes. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Our
facilities are FDA and DEA registered, and ISO9001 and ISO13485 certified. Our manufacturing facilities in Grand Rapids are licensed to manufacture OTC products, consumer products, prescription
transdermal, dermal and mucosal products, as well as wound care products. Our Grand Rapids facilities also have the capacity to produce well over 100&nbsp;million patches annually and can be
expanded as our needs grow. A number of our equipment lines have been fully funded by our partners to support the development of partnered products. In these cases, the partners retain title to those
equipment lines, while we retain responsibility to maintain and operate them. Our operations include on-site quality control laboratories and testing procedures, quality assurance systems, and
internal audit procedures for our processes and equipment. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Intellectual Property  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our success depends on our ability to obtain patents and protect our trade secrets and know-how. We must be able to operate without infringing on any
other company's intellectual property and we must prevent others from infringing our intellectual property. Our strategy is to protect our intellectual property by filing both U.S. and international
patents related to our proprietary technologies, products, inventions and improvements that are important to our business. As of January&nbsp;31, 2014, we held 38 U.S. issued patents and 147 foreign
issued patents (which include granted European patents rights that have been validated in various EU member states) and 28 U.S. pending patents and 60 foreign pending patents relating to our Corplex
and MicroCor technologies and products. Of the issued U.S. patents, 21 relate to composition of matter and 17 relate to use or process. Of the pending U.S. patents, 25 relate to composition of matter
and 3 relate to use or process. Our foreign patents generally include both composition of matter and use or process claims. Our issued U.S. patents and patent applications will expire between 2019 and
2034. Some of the issued patents and pending patent applications, if issued may also be eligible for patent term adjustment and patent term restoration, thereby extending their patent terms. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Proprietary
rights for our products in development and our potential products will be protected from use by third parties only to the extent that they are covered by valid and enforceable patents or
are effectively maintained as trade secrets. Patents owned by us (or licensed by us) may not protect us from competition in the future and our pending patent applications may not result in patent
rights being issued. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as they do under U.S. law. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
patent positions of pharmaceutical, drug delivery and biotechnology companies are complex and enforcement cannot be predicted with certainty. Our patents or patent applications, if issued, may be
challenged or invalidated and the rights granted may not provide proprietary protection or competitive advantages over our competitors with similar technologies. Our competitors may also develop
similar technologies to ours, or in fact duplicate our technologies. Because the regulatory timeline is quite long and expensive to develop the types of products that we develop, it is possible that
before any of our products are commercialized, any related patent may expire or exist for only a short period of time following commercialization. This could negatively impact our ability to protect
our future products and consequently our operating results and financial position. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
products in developments may be covered by third party patents or other intellectual property rights, in which case we would need to obtain a license to continue to develop and/or market these
products. Such licenses may not be available on acceptable terms and such licenses may not be attainable, which could delay product launches if we are required to design around a patent. Litigation
may be necessary to defend against or assert claims of infringement enforce patents, protect trade secrets or know-how or to determine validity in order to
freely sell a product in the marketplace. In addition, interference, derivation, post-grant oppositions or other proceedings may be necessary to determine rights to inventions in our patents.
Litigation could incur substantial financial costs and may have a material adverse effect on our business, financial condition or results of operations. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
certain circumstances, we rely on trade secrets to protect our technology. Trade secrets are difficult to protect. Generally we protect our proprietary processes and manufacturing this way and we
secure confidentiality agreements from all of our employees, contractors, consultants and advisors. We cannot assure that the agreements will not be breached or that we will be able to remedy such a
breach or that our trade secrets will not become known in the public domain and be discovered by our competitors. Disputes may also arise with respect to know-how and inventions created by our
employees, contractors and consultants. See the section entitled "Risk Factors&#151;Risks Related to Our Intellectual Property." </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Regulatory  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Food and Drug Administration.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements
upon the clinical development, manufacture and marketing of pharmaceutical, and consumer cosmetic products. These agencies and other federal, state and local entities regulate research and development
activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval, advertising and promotion of our products. Many of our
products are combination drug-device products that are regulated as drugs by the FDA, with consultations from the device center in the FDA. Others, such as consumer teeth whitening products, are
regulated by the FDA as cosmetics. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA's refusal to
approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal of the product from the market, injunctions, fines,
civil penalties or criminal prosecution. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> FDA Regulation of Drugs.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The process required by the FDA under the new drug provisions of the Federal Food,
Drug, and Cosmetic Act, or the FFDC Act, before our investigational drugs may be marketed in the U.S. generally involves the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Completion of extensive preclinical laboratory tests and preclinical animal
studies, all performed in accordance with the FDA's Good Laboratory Practice, or GLP, regulations; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Submission of an Investigational New Drug application, or IND, which must
become effective before clinical trials may begin; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Performance of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the investigational drug for each proposed indication in accordance with the FDA's current good clinical practice, or GCP, requirements; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Submission to the FDA of a New Drug Application, or NDA, after completion of
all pivotal clinical trials; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Satisfactory completion of an FDA pre-approval inspection of the
manufacturing facilities at which the drug will be produced to assess compliance with current good manufacturing practice, or cGMP, regulations, or, for our medical device components, the Quality
System Regulation, or QSR; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>FDA review and approval of an NDA prior to any commercial marketing or sale
of the drug in the United States. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Preclinical
tests include laboratory evaluation of the investigational drug, its chemistry, formulation and stability, as well as animal studies to assess its potential safety and efficacy. For human
clinical trials to be conducted in the United States, we must generally submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of
an IND, which must become effective before we may begin human clinical trials. An IND automatically becomes effective 30&nbsp;days after receipt by the FDA, unless the FDA, within the 30-day time
period, raises concerns or questions about the conduct of the trials as outlined in the IND and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can begin. Our submission of an IND may not result in FDA authorization to commence
clinical trials. Further, an independent Institutional Review Board, or IRB, at each medical center proposing to conduct the clinical trials must review and approve any clinical study as well as the
related informed consent forms and authorization forms that permit us to use individually identifiable health information of study participants. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Clinical
trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the
requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the
objective of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be
submitted to the FDA as part of the IND. The IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trial results to public registries. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>The
foregoing discussion of clinical trials applies to clinical trials conducted under an IND. In some instances, we may conduct clinical trials outside of the United States, which may require
different or additional regulatory submissions depending on the country in which the trial is conducted. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Human
clinical trials are typically conducted in three sequential phases which may overlap or be combined:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Phase&nbsp;1: Includes the initial introduction of an investigational drug
into humans. Phase&nbsp;1 studies are typically closely monitored and may be conducted in patients or normal volunteer subjects. Phase&nbsp;1 studies are designed to determine the metabolism and
pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During these studies, sufficient information
about the drug's pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase&nbsp;2 studies. These studies include studies of
drug metabolism, structure-activity relationships, and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or
disease processes. </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Phase&nbsp;2: Includes controlled clinical studies conducted to evaluate
the effectiveness of the drug for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated
with the drug. </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Phase&nbsp;3: When Phase&nbsp;2 clinical trials suggest effectiveness of
a drug, Phase&nbsp;3 clinical trials are undertaken to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug
and to provide an adequate basis for physician labeling. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
cannot be certain that we will successfully complete Phase&nbsp;1, Phase&nbsp;2 or Phase&nbsp;3 clinical trials of our investigational drugs within any specific time period, if at all.
Furthermore, the FDA or the IRB or the sponsor may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Sponsors of clinical trials may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. During the clinical development
of products, sponsors may meet and consult with the FDA in an effort to ensure that the design of their studies will likely provide data both sufficient and relevant for later regulatory approval;
however, no assurance of approvability can be given by the FDA. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
results of product development, preclinical studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercial shipment of the product. Submission
of an NDA requires the payment of a substantial user fee to the FDA, and although the agency has defined user fee goals that govern the length of an NDA's review time, we cannot assure that the FDA
will make a review decision in any particular timeframe. After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its active pharmaceutical
ingredient, or API, will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete but the application is not ready for approval. A Complete Response
Letter may require additional clinical data and/or an one or more additional clinical trials, as FDA has required of our partner Agile, and/or other requirements related to clinical trials,
preclinical studies or manufacturing, any of which may be expensive and require considerable time to complete. Even if such data are submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>After
approving a drug, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if safety problems occur after the product reaches the market. Requirements
for additional Phase&nbsp;4 studies (post approval marketing studies) to confirm safety and effectiveness in a broader commercial use population may be imposed as a condition of marketing approval.
In addition, the FDA requires surveillance programs to monitor approved products which have been commercialized, and the </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>agency
has the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Satisfaction
of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon
the type, complexity and novelty of the pharmaceutical product. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly
procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approval for any of our pharmaceutical systems under development on a timely basis, if at
all. Success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical activities is not always conclusive and
may be susceptible to varying interpretations which could delay, limit or prevent regulatory approval. Evolving safety concerns can result in the imposition of new requirements for expensive and time
consuming tests. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications. Further, even after regulatory approval is obtained, later discovery
of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Any pharmaceutical systems that we may develop and
obtain approval for would also be subject to adverse findings of the active drug ingredients being marketed in different dosage forms and formulations. Delays in obtaining, or failures to obtain
regulatory approvals would have a material adverse effect on our business. Marketing our pharmaceutical systems abroad will require similar regulatory approvals and is subject to similar risks. In
addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action. Our partners are the NDA and ANDA holders and therefore communicate with
FDA with respect to the applications. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including cGMP requirements, and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic announced and
unannounced inspections by the FDA and state agencies for compliance with cGMP regulations, which impose procedural and documentation requirements upon us and our third party manufacturers. In
addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. We cannot be
certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Future
FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial
resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer
or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. For
example, in 2008 and 2010 we conducted recalls of our fentanyl
products and were inspected by the FDA. These inspections led to the issuance of FDA Forms&nbsp;483 identifying inspectional observations. The most recent FDA inspection of our facility was a
Pre-Approval Inspection for NDA 20407 and ANDA 90526 (transdermal patches). The FDA issued a three-observation 483, which we addressed as part of our ongoing obligations under the FDA's quality system
regulation. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
FDA regulates drug labeling and promotion activities. The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses, and federal and state authorities are
also </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>actively
litigating against sponsors who promote their drugs for unapproved uses under various fraud and abuse and false claims act statutes. We and our pharmaceutical systems are also subject to a
variety of state laws and regulations in those states or localities where our pharmaceutical systems are or will be marketed. Any applicable state or local regulations may constrain our ability to
market our pharmaceutical systems in those states or localities. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or
in the future. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
FDA's policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our drug product candidates. Moreover, increased attention to the
containment of health care costs in the U.S. and in foreign markets could result in new government regulations that could have a material adverse effect on our business. We cannot predict the
likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
FDA also has the authority to require a risk evaluation and mitigation strategy (REMS) to ensure the safe use of the drug. The FDA has authority to require a REMS under the Food and Drug
Administration Amendments Act of 2007, or FDAAA, when necessary to ensure that the benefits of a drug outweigh the risks.In determining whether a REMS is necessary, the FDA must consider the size of
the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential
adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required
to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug's risks, limitations on who may prescribe or
dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18&nbsp;months, three
years, and seven years after the strategy's approval. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is
necessary to ensure that the drug's benefits outweigh its risks. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>On
July&nbsp;9, 2012, the FDA approved a REMS for extended-release and long-acting opioid medications. Several of our currently marketed drug products and investigational drugs, including fentanyl
and buprenorphine, are subject to the REMS. There may be increased cost, administrative burden and potential liability associated with the marketing and sale of drugs subject to the REMS requirement,
which could negatively impact the commercial benefits to us and our partners from the sale of these drug products and, if approved, drug product candidates. Our partners, as the holders of the
marketing applications for the affected drugs, are responsible for compliance with the opioid REMS requirements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Hatch-Waxman Act.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;505 of the FFDC Act describes three types of NDAs that may be submitted to the FDA to request marketing authorization for a new
drug. A Section&nbsp;505(b)(1) NDA is an application that contains full reports of investigations of safety and effectiveness. The Drug Price Competition and Patent Term Restoration Act of 1984,
also known as the Hatch-Waxman Act, created two additional marketing pathways under Sections&nbsp;505(b)(2) and 505(j) of the FFDC Act. A 505(b)(2) NDA is an application that contains full reports
of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has
not obtained a right of reference. This regulatory pathway enables the applicant to rely, in part, on the FDA's findings of safety and efficacy for an existing product, or published literature, in
support of its application. Section&nbsp;505(j) establishes an abbreviated approval process for generic version of approved drug products through the submission of an Abbreviated New Drug
Application, or ANDA. An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance
characteristics and intended use, among other things, to a previously </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>approved
product. ANDAs are termed "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness. Instead,
generic applicants must scientifically demonstrate that their product is bioequivalent to (i.e.,&nbsp;performs in the same manner as) the innovator drug. The generic version generally must deliver
approximately the same amount of active ingredients into a patient's bloodstream in the same amount of time as the innovator drug. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Upon
submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that (1)&nbsp;no patent information on the drug product that is the subject of the application has been submitted
to the FDA; (2)&nbsp;such patent has expired; (3)&nbsp;the date on which such patent expires; or (4)&nbsp;such patent is invalid or will not be infringed upon by the manufacture, use or sale of
the drug product for which the application is submitted. This last certification is known as a paragraph&nbsp;IV certification. If the paragraph&nbsp;IV certification is challenged by an NDA
holder or the patent owner(s) asserts a patent challenge to the paragraph&nbsp;IV certification, the FDA may not approve that application until the earlier of 30&nbsp;months from the receipt of
the notice of the paragraph&nbsp;IV certification, the expiration of the patent, when the infringement case concerning each such patent was favorably decided in the applicant's favor or such shorter
or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification,
the NDA holder or patent owner(s) regularly take action to trigger the 30&nbsp;month stay, recognizing that
the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent
certification the applicant makes and the reference drug sponsor's decision to initiate patent litigation. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application
that relies on the branded reference drug. For example, the holder of an NDA may obtain five years of exclusivity upon approval of a new drug containing a new chemical entity, or NCE, that has not
been previously approved by the FDA. The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval,
or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential
to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDA for drugs that include the
innovation that required the new clinical data. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
expect that some of our drug candidates will utilize the section&nbsp;505(b)(2) regulatory pathway. Even though several of our drug products utilize active drug ingredients that are commercially
marketed in the United States in other dosage forms, we need to establish safety and effectiveness of those active ingredients in the formulation and dosage forms that we are developing. We also have
several partnered products that are approved pursuant to ANDAs or will be filed under the ANDA pathway. All approved products, both innovator and generic, are listed in FDA's Approved Drug Products
with Therapeutic Equivalence Evaluations (Orange Book). </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> The Drug Enforcement Administration.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Certain of our products, including our fentanyl patch, are regulated as a "controlled substance" as defined in the Controlled
Substances Act of 1970, or CSA, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the Drug Enforcement Administration, or
DEA. The DEA is concerned with the control of handlers of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and
diversion into illicit channels of commerce. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
DEA regulates controlled substances as Schedule&nbsp;I, II, III, IV or V substances, with Schedule&nbsp;I substances considered to present the highest risk of substance abuse and
Schedule&nbsp;V substances the lowest risk. Certain active ingredients such as fentanyl and buprenorphine, are listed by the DEA as Schedule&nbsp;II and Schedule&nbsp;III respectively under the
CSA. Consequently, their manufacture, research, shipment, storage, </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>sale
and use are subject to a high degree of oversight and regulation. For example, all Schedule&nbsp;II drug prescriptions must be signed by a physician, generally physically presented to a
pharmacist and may not be
refilled without a new prescription. Furthermore, the amount of Schedule&nbsp;II substances we can obtain for clinical trials and commercial distribution is limited by the DEA in accordance with a
quota system and our quota may not be sufficient to complete clinical trials or meet commercial demand. The DEA establishes annually an aggregate quota for how much fentanyl may be produced in total
in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of fentanyl that the DEA allows to be produced
in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We must receive an annual
quota from the DEA in order to produce or procure any Schedule&nbsp;II substance, including fentanyl for use in manufacturing our fentanyl products. The DEA may adjust aggregate production quotas
and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Annual
registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location,
activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are
authorized. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements
applying to Schedule&nbsp;I and Schedule&nbsp;II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages,
surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distribution reports for
Schedule&nbsp;I and II controlled substances, Schedule&nbsp;III substances that are narcotics, and other designated substances. Reports must also be made for thefts or losses of any controlled
substance, and to obtain authorization to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Failure
to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in enforcement action that could have a material adverse effect on our
business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain
circumstances, violations could eventuate in criminal proceedings. Individual states also regulate controlled substances, and we and our partners will be subject to state regulation on distribution of
these products. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>There
is a risk that DEA regulations may interfere with the supply of the drugs used in our clinical trials and sold commercially, and, thus on our ability to produce and distribute our products in
the volume needed to meet clinical and commercial demand. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> FDA Regulation of Consumer Cosmetic Products.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Consumer teeth whitening products are regulated by the FDA as cosmetics. The processing, formulation, safety,
manufacturing, packaging, labeling, advertising and distribution of these products are subject to regulation by one or more federal agencies, including the FDA and the Federal Trade Commission, or
FTC, and by various agencies of the states and localities in which these products are sold.
Cosmetic products and their ingredients do not require premarket approval prior to sale, but are subject to specific labeling regulations. While the FDA has not promulgated specific cGMPs for the
manufacture of cosmetics, the FDA has provided guidelines for cosmetic manufacturers to follow to ensure that their products are neither misbranded or adulterated. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
FTC exercises jurisdiction over the advertising of cosmetics. In recent years, the FTC has instituted numerous enforcement actions against companies for failure to have adequate substantiation for
claims </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>made
in advertising or for the use of false or misleading advertising claims. We are also subject to regulation under various state, local, and international laws that include provisions governing,
among other things, the formulation, manufacturing, packaging, labeling, advertising, and distribution of cosmetics. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><I> Other Healthcare Laws.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Although we do not directly market or promote any of our products, we and our partners are subject to additional healthcare regulation and
enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws may include, without limitation: (a)&nbsp;federal and
state laws relating to the Medicare and Medicaid programs and any other federal healthcare program; (b)&nbsp;federal and state laws relating to healthcare fraud and abuse, including, without
limitation, the federal Anti-Kickback Statute (42&nbsp;U.S.C. &sect;&nbsp;1320a-7b(b)), the federal False Claims Act (31&nbsp;U.S.C. &sect;&sect;&nbsp;3729 et seq.), the
False Statements Statute, (42&nbsp;U.S.C. &sect;&nbsp;1320a-7b(a)), the Exclusion Laws (42&nbsp;U.S.C. &sect;&nbsp;1320a-7), the federal Physician Payment Sunshine Act
(42&nbsp;U.S.C. &sect;&nbsp;1320a-7h), the Anti-Inducement Statute (42&nbsp;U.S.C. &sect;&nbsp;1320a-7a(a)(5)), the Civil Monetary Penalties Law (42&nbsp;U.S.C.
&sect;&nbsp;1320a-7a) and criminal laws relating to healthcare fraud and abuse, including but not limited to 18&nbsp;U.S.C. Section&nbsp;286 and 287, and the Health Insurance Portability
and Accountability Act of 1996, or HIPAA (Pub.L.&nbsp;104-191); (c)&nbsp;state laws relating to Medicaid or any other state healthcare or health insurance programs; (d)&nbsp;federal or state
laws relating to billing or claims for reimbursement submitted to any third party payor, employer or similar entity, or patient; (e)&nbsp;any other federal or state laws relating to fraudulent,
abusive or unlawful practices connected in any way with the provision or marketing of healthcare items or services, including laws relating to the billing or submitting of claims for reimbursement for
any items or services reimbursable under any state, federal or other governmental healthcare or health insurance program or any private payor; and (f)&nbsp;federal and state laws relating to health
information privacy and security, including HIPAA, and any rules or regulations promulgated thereunder, the Health Information Technology for Economic and Clinical Health Act, or HITECH, enacted as
part of the American Recovery and Reinvestment Act of 2009 and any regulations promulgated thereunder. If our operations or our partners' operations and practices are found to be in violation of any
of such laws or any other governmental regulations that apply to us or our partners, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or
restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and
our financial results. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Coverage and Reimbursement.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sales of our products marketed by our partners will depend, in part, on the extent to which our products will be covered by third-party
payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for certain medical
products and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing
controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our products or a decision by a third-party payor to not cover our products could
reduce or eliminate utilization of our products and have a material adverse effect on our sales, results of operations and financial condition. In addition, state and federal healthcare reform
measures have been and will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in
reduced demand for our products or additional pricing pressures. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Marketing and Sales  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Due to the nature of our partnerships and our current business relationships, we currently do not have or require an in-house commercial sales force
or marketing function. We have a business development program that generates new business opportunities with pharmaceutical and biopharma companies, including delivering their proprietary drugs in
transdermal systems to improve their therapeutic profile, extending the brand life of drugs by offering new dosage formats, and co-developing products that we have initiated. Historically, we have
partnered with pharmaceutical companies to market and sell each of the products that we develop and manufacture. In most cases, we work together with our partners to decide which products to develop.
However, in some instances we selectively develop products on our own prior to partnering with another company. In the future, we may build our own commercial sales and marketing capability in certain
niche markets in order to capture more of the economic value of the products that we may develop. We may also enter into co-promotion agreements for certain of our products with our partners. We will
continue to pursue strategic alliances with partners who have significant marketing and distribution presence and expertise. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Competition  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face
competition from other companies in numerous industries, including pharmaceuticals and drug delivery. We believe the key competitive factors that will affect the commercial success of our products and
the development of our product candidates include onset of action, bioavailability, efficacy, compliance, cost, convenience of dosing, safety and tolerability profile. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Companies
focused on delivering small molecules transdermally include 3M, Johnson&nbsp;&amp; Johnson, Lohmann Therapies Systems, or LTS, Mylan, Hisamitsu, or Noven, and Actavis. Companies operating in
the microneedle transdermal field include 3M, Zosano, Theraject and Fujifilm. Several academic institutions are also conducting research in the microneedle field. In addition to microneedle
technologies, there are other methods of transdermal delivery under development for biologics, including heat ablation, laser, ultrasound and radio frequency. Companies developing and manufacturing
transdermal systems for biologics include Becton Dickinson, Vyteris, and Zogenix. Some of these companies may be addressing the same therapeutic areas or indications as we are. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
current products compete, and products in development will compete, in highly competitive markets against both transdermal products and products addressing similar patient and customer needs
through other delivery forms. Clonidine TDS, Fentanyl TDS and our future ANDA products will have competition from other generic pharmaceutical companies, including Mylan and Actavis, both of which
have their own transdermal manufacturing capability. Other manufacturers of fentanyl patches use a different technology than ours, and although fentanyl patches made with either technology have
experienced manufacturing challenges, competitors may claim their technology is superior. The Crest Whitestrips products compete with teeth whitening products marketed by various private labels such
as those at Walgreens and CVS. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Many
of our existing and potential competitors have substantially greater financial, research and development, and human resources than we do, may succeed in obtaining patent protection before us, and
have greater experience than we do commercializing products and developing product candidates, including obtaining FDA and other regulatory approvals for product candidates. Consequently, our
competitors are applying significant resources and experience to the problems of drug delivery and transdermal drug delivery in particular. We cannot assure you that our transdermal delivery systems
will compete effectively against existing and future transdermal or other delivery systems. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>103</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Employees  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of January&nbsp;31, 2014 we had 243 employees, including 29 in research and development, 196 in operations and 18 in general and administrative
roles. From time to time, we also employ independent contractors to support our research and development and our administrative organizations. We also hire temporary employees when needed in our
manufacturing and quality groups. None of our employees are represented by a collective bargaining unit, and we have never experienced a work stoppage. We consider our relations with our employees to
be good. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Legal Proceedings  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Historically, there has been litigation surrounding the Fentanyl TDS product that we manufacture for Par, in which we are named as a co-defendant with
Actavis. We have had 19 past legal proceedings related to this product. The settlement amounts were shared equally with our partner and were not material. Eighteen of the cases have been dismissed
with prejudice, and one case is pending. On August&nbsp;3, 2012, a wrongful death lawsuit was filed against us in the U.S. District Court for the Northern District of Texas, </FONT> <FONT SIZE=2><I>Boudreaux vs. Corium International, Inc., et
al.</I></FONT><FONT SIZE=2> Plaintiffs have alleged a family member died in connection with the use of Fentanyl TDS. The amount of
the damages has not been specified. For this pending suit, we have insurance coverage up to $10&nbsp;million with a maximum liability of $50,000 of out-of-pocket expense. We do not believe that the
case has merit and plan to defend against this claim. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Facilities  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our principal executive offices and research and development operations are located in Menlo Park, California, in a 25,000 square foot building which
houses full product research and development capabilities, including proprietary drug delivery research in novel polymer blending and formulations; system design and engineering; prototyping and pilot
manufacturing; analytical, quality assurance and quality control; early nonclinical and clinical development; and regulatory capabilities for clinical development and pilot scale manufacture. We have
been in our current Menlo Park location for seven years and the term of our current Menlo Park lease has been extended to December 2014. We are also evaluating opportunities for facility expansion. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
manufacturing facilities are located in Grand Rapids, Michigan in three buildings comprising approximately 200,000 square feet. We manufacture all of our current commercial products at these
facilities. We also perform process development, prototyping, pilot and commercial manufacturing and quality control in our labs in Grand
Rapids. We are qualified for prescription transdermal, dermal, mucosal and wound care products as well as OTC products. The facility is FDA and DEA registered and ISO9001 and ISO13485 certified. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
lease two of our three existing buildings in Grand Rapids on a long term basis. One building is dedicated exclusively to shipping and receiving, inventory and warehousing, but the space has been
improved for multipurpose use. Our warehouse lease will expire in 2015. The other two buildings house all commercial manufacturing as well as administrative offices. We also own a four acre lot across
the street from the commercial manufacturing operations for planned future expansion. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>104</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  MANAGEMENT    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Executive Officers and Directors  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table provides information regarding our executive officers and directors as of December&nbsp;31, 2013: </FONT></P>

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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Age </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Position(s) </B></FONT></TH>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Peter D. Staple</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>62</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>President, Chief Executive Officer and Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert S. Breuil</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>52</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Chief Financial Officer</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Parminder Singh</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>50</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Chief Technology Officer and Vice President, Research and Development</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>David Greenwood<SUP>(1)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>62</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director, Executive Chairman</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bhaskar Chaudhuri<SUP>(1)</SUP><SUP>(3)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>59</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gary W. Cleary</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>71</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ronald Eastman<SUP>(2)</SUP><SUP>(3)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>61</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Phyllis Gardner</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>John W. Kozarich</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert W. Thomas<SUP>(1)</SUP><SUP>(2)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>52</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Daniel G. Welch<SUP>(2)</SUP><SUP>(3)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>56</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
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<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Member
of the Audit Committee.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Member
of the Compensation Committee.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Member
of the Nominating and Governance Committee. </FONT></DD></DL>

<P style="font-family:arial;"><FONT SIZE=2><B> Executive Officers  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Peter D. Staple.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Staple has served as our President, Chief Executive Officer and a director on our board since March&nbsp;2008. He previously served as
Chief Executive Officer of BioSeek,&nbsp;Inc., a drug discovery company applying
predictive human biology, from 2002 to 2007 and was a director at BioSeek from 2002 to 2008. Prior to BioSeek, starting in 1994, he had various positions at ALZA&nbsp;Corporation, an early leader in
the field of oral and transdermal drug delivery, from 1994 to 2001, most recently as Executive Vice President, Chief Administrative Officer and General Counsel, until ALZA's merger with
Johnson&nbsp;&amp; Johnson, or J&amp;J, in 2001. Prior to joining ALZA, Mr.&nbsp;Staple served in senior positions at Cetus and Chiron Corporations, each a biotechnology company. Prior to entering the
biotechnology industry, Mr.&nbsp;Staple practiced corporate and securities law with Heller Ehrman&nbsp;LLP, a law firm. Mr.&nbsp;Staple serves as chairman of the board of directors of
Depomed,&nbsp;Inc. He holds B.A. and J.D.&nbsp;degrees from Stanford University. Our board believes that Mr.&nbsp;Staple's experience in the biotechnology and drug delivery businesses and
management expertise qualify him to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Robert S. Breuil.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Breuil joined Corium in September&nbsp;2012. Prior to that, he served as the Chief Financial Officer of Codexis,&nbsp;Inc., a
developer of biocatalysts for the pharmaceutical and fine chemical production industries, from 2006 to September&nbsp;2009. From 2002 to 2005, Mr.&nbsp;Breuil was the Chief Financial Officer of
Aerogen,&nbsp;Inc., a specialty pharmaceutical company focusing on the field of aerosolized drug delivery, which was acquired by Nektar Therapeutics in October&nbsp;2005. Prior to Aerogen,
Mr.&nbsp;Breuil worked at ALZA, where he held numerous positions including Director of Corporate Planning and Analysis and Controller. In 2001, ALZA was acquired by J&amp;J and Mr.&nbsp;Breuil stayed
on as Controller until joining Aerogen in 2002. Before his industry experience, he served for eight years as a naval officer and aviator. Mr.&nbsp;Breuil received a B.S. from the United States Naval
Academy and an M.B.A. from the Stanford Graduate School of Business. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Parminder Singh, Ph.D.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Singh joined Corium in 2002. Prior to working at Corium, Dr.&nbsp;Singh held research and development and senior management
positions at Novartis International&nbsp;AG, an international </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>105</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>pharmaceutical
company, Ciba-Geigy&nbsp;AG, a pharmaceutical company that merged into Novartis and Vyteris,&nbsp;Inc., a specialty pharmaceutical company developing and producing transdermal
systems. Dr.&nbsp;Singh holds a B.Pharm and an M.Pharm from Punjab University in India. He received his Ph.D. in Pharmaceutics from the University of Queensland, Australia and completed his
post-doctorate fellowship at the University of California, San Francisco. He is a member of the American Association of Pharmaceutical Scientists and the Controlled Release Society. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Directors  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> David L. Greenwood.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Greenwood has served on our board of directors since December 2010, and as our Executive Chairman since June 2012. Beginning in July
2013, Mr.&nbsp;Greenwood became a full time employee of our company, with primary responsibility in strategic positioning and financing. He is the former President, Chief Executive Officer, Chief
Financial Officer and Director of Geron where he worked from 1995 until December 2011. He was previously on the board of directors of Geron's wholly-owned subsidiary, Geron Bio-Med Limited, Geron's
majority-owned subsidiary, TA&nbsp;Therapeutics,&nbsp;Ltd., ViaGen,&nbsp;Inc., and Clone International. He also served on the Board of Regents for Pacific Lutheran University. From 1979 until
joining Geron, Mr.&nbsp;Greenwood held various positions with J.P.&nbsp;Morgan&nbsp;&amp;&nbsp;Co. Incorporated, an international banking firm. Mr.&nbsp;Greenwood holds a B.A. from Pacific
Lutheran University and a M.B.A. from Harvard Business School. Our board believes that Mr.&nbsp;Greenwood's financial and business expertise in the biotech industry qualify him to serve as a member
of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Bhaskar Chaudhuri, Ph.D.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Chaudhuri has served on our board of directors since February 2010. He has been an operating partner of Frazier Healthcare since
July 2011. He served as President of Valeant Pharmaceuticals International, or Valeant, a pharmaceutical company with a diverse range of products, from January 2009 to September&nbsp;2010. Prior to
Valeant, Dr.&nbsp;Chaudhuri served for seven years as Chief Executive Officer and President of Dow Pharmaceutical Sciences,&nbsp;Inc., a dermatology company specializing in the development of
topical products that was acquired by Valeant. Before joining Dow, he served as General Manager of the Dermatology Division of Mylan Laboratories, and as Executive Vice President of Scientific Affairs
at Bertek Pharmaceuticals, a subsidiary of Mylan, where he was responsible for research and development activities as well as certain of the company's manufacturing operations. Prior to this, he
served as Vice President of Research and Development at Penederm, Inc., a skin-products and drug delivery company. He sits on the board of directors at IGI Laboratories,&nbsp;Inc. and Silvergate
Pharmaceuticals,&nbsp;Inc. Dr.&nbsp;Chaudhuri holds a B.Pharm and an M.Pharm from Jadavpur University in India and a Pharm.D from the University of Louisiana. Our board believes that
Dr.&nbsp;Chaudhuri's industry management experience gives him extensive product development and commercialization knowledge which qualifies him to serve as a member of the board. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><I> Gary W. Cleary, Ph.D.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Cleary has served on our board of directors since 2002. Dr.&nbsp;Cleary is a co-founder and Scientific Advisor of Corium. During
his career, he held research and management positions at the FDA, ALZA, Key Pharmaceuticals, Genentech,&nbsp;Inc., and Cygnus,&nbsp;Inc., a company that developed the Ortho-Evra Patch and
self-monitoring devices for glucose measurements. Dr.&nbsp;Cleary founded Cygnus in 1985 and served as its President, Chairman and Scientific Advisor. Early in his career, Dr.&nbsp;Cleary served
for three years in the U.S. Public Health Service. Dr.&nbsp;Cleary is a Fellow of the American Association of Pharmaceutical Scientists and the American Institute of Medical and Biomedical
Engineering and past president of the Controlled Release Society. Dr.&nbsp;Cleary is currently a member of Rutgers University's Biomedical Engineering Advisory Board, and the Pharmaceutical Advisory
Boards of the University of California, San Francisco, the University of Pacific and Appian Labs,&nbsp;LLC. Dr.&nbsp;Cleary earned a Pharm.D. degree from the University of California, San
Francisco, an M.B.A. in health sciences from the University of Miami, and a Ph.D. in pharmaceutics from Rutgers University. Our board believes that Dr.&nbsp;Cleary's deep institutional knowledge of
Corium and our technologies and his scientific expertise qualify him to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Ronald Eastman.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Eastman has served on our board of directors since 2007. Mr.&nbsp;Eastman joined Essex Woodlands Health Ventures, or Essex Woodlands,
in October&nbsp;2006, as a managing director. Prior to joining </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>106</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>Essex
Woodlands, Mr.&nbsp;Eastman was Chief Executive Officer at Rinat Neuroscience, a private biotech company spun out of Genentech in late 2001. Rinat was acquired by Pfizer in 2006. From 1996 to
1999 he was Chief Executive Officer at Geron Corporation, or Geron, a biotech company in the fields of regenerative medicine and cancer. From 1999 to 2002, Mr.&nbsp;Eastman had a leadership position
with HCORP, a hospital-based, interactive patient services company, which was acquired by a competitor in 2001. He began his career at American Cyanamid Company, which was acquired by American Home
Products (now Pfizer), where he held jobs with increasing responsibility. He currently serves as Chairman of the board of directors at Elusys Therapeutics, and several other private companies.
Mr.&nbsp;Eastman served on the board of directors at The Buck Institute, the largest non-profit research institute in the United States studying diseases of aging. Mr.&nbsp;Eastman holds a B.A.
from Williams College and an M.B.A. from Columbia University. Our board believes that Mr.&nbsp;Eastman's experience in the biotech industry and management expertise qualify him to serve as a member
of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Phyllis Gardner, M.D.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Gardner has served on our board of directors since 2007. Dr.&nbsp;Gardner is currently a Professor of Medicine at Stanford
University, where she has held several positions since she began there in 1984, including Senior Associate Dean for Education and Student Affairs. She has also been an adjunct partner at Essex
Woodlands since 1999. From 1994 to 1996, she took a leave of absence to work at ALZA as a Principal Scientist, Vice President of Research and as Head of ALZA Technology Institute. She has received
numerous national awards and honors and serves on the board of directors of Revance Therapeutics, Dr.&nbsp;Gardner holds a B.S. from the University of Illinois and an M.D. from Harvard Medical
School. She trained in internal medicine at Massachusetts General Hospital, followed by a Chief Residency at Stanford University Medical Center. She completed research fellowships at the College of
Physicians and Surgeons at Columbia University and University College, London, U.K. Our board believes that Dr.&nbsp;Gardner's expertise in medicine, pharmacology and drug delivery systems qualify
her to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> John W. Kozarich, Ph.D.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Kozarich has served on our board of directors since 2007. He has been the President, Chief Science Officer and chairman of the
board of directors of ActivX Biosciences,&nbsp;Inc., a company specializing in drug delivery technology, since February 2001. Dr.&nbsp;Kozarich previously served as a Vice President at Merck
Research Laboratories, from 1992 to 2001 where he was responsible for programs including antimicrobial drug discovery, enzymology, 5a-reductase biology, lipid biochemistry, nuclear receptors, ion
channels and structural biology. Previously, Dr.&nbsp;Kozarich held faculty positions at the University of Maryland, College Park, and Yale University School of Medicine. He also served as Vice
President, Research and Development at Alkermes, a biotechnology company that develops products based on sophisticated drug delivery technologies. He is the chairman of the board of directors of
Ligand Pharmaceuticals,&nbsp;Inc., the Chief Pharmaceutical Advisor to KinDex
Therapeutics,&nbsp;Inc., and the Chief Scientific Advisor for Kyorin Pharmaceutical&nbsp;Co. Dr.&nbsp;Kozarich has also served on numerous government and academic committees. Dr.&nbsp;Kozarich
received a B.S. in chemistry from Boston College and a Ph.D. in biological chemistry from the Massachusetts Institute of Technology, where he was a National Science Foundation pre-doctoral Fellow. He
was a National Institutes of Health post-doctoral Fellow at Harvard University. Our board believes that Dr.&nbsp;Kozarich's experience in biomedical research and leadership experience in the
pharmaceutical industry qualify him to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Robert W. Thomas.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Thomas has served on our board of directors since 2007, and from 2007 to 2008 served as our Chief Executive Officer. Since
March&nbsp;2013, he has been a partner at Aphelion Capital,&nbsp;LLC, a venture capital firm focused on medical technology. From 1998 until 2006, he served as the President, Chief Executive
Officer and member of the board directors of Fox Hollow Technologies,&nbsp;Inc. a medical device company specializing in the design, development and manufacture of devices for the treatment of
peripheral artery disease, and prior to serving as President and Chief Executive Officer, Mr.&nbsp;Thomas was Vice President of Operations for Fox Hollow. From 1997 through 1998, Mr.&nbsp;Thomas
was Vice President of Operations for the women's health company, Conceptus&nbsp;Inc., and prior to that was the founder of Thomas Medical,&nbsp;Inc., a private medical device company that was
ultimately sold to GE Healthcare. Mr.&nbsp;Thomas also was a manager and director of operations at Access Devices, where he worked from 1984 to 1990, </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>107</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>which
was acquired by Baxter Healthcare. From 2006 until its acquisition by Stryker in 2011, Mr.&nbsp;Thomas served as a member of the board of directors of Concentric Medical,&nbsp;Inc. From 2009
until January 2013, Mr.&nbsp;Thomas served as a member of the board of directors of CV Ingenuity Corp. and Mr.&nbsp;Thomas currently serves as a member of the board of directors for
TriVascular,&nbsp;Inc. Mr.&nbsp;Thomas received a B.A. from Ursinus College. Our board believes that Dr.&nbsp;Thomas' extensive industry management and operations background experience qualify
him to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Daniel G. Welch.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Welch has served on our board of directors since 2007. Mr.&nbsp;Welch serves as Chairman, Chief Executive Officer and President of
InterMune&nbsp;Inc., a biotech company focused on research, development, and commercialization of therapies for pulmonology and fibrotic diseases, and as a member of the board of directors of
InterMune, where he has worked since 2003. Before joining InterMune, Mr.&nbsp;Welch served as a consultant to Warburg Pincus&nbsp;LLC, a global private equity investment firm. From 2002 to 2003,
Mr.&nbsp;Welch served as chairman and chief executive officer of Triangle Pharmaceuticals,&nbsp;Inc., a pharmaceutical company. From 2000 to 2002, Mr.&nbsp;Welch served as president of the
pharmaceutical division of Elan Corporation,&nbsp;plc. From 1987 to 2000, Mr.&nbsp;Welch served in various senior management roles at Sanofi (now Sanofi-Aventis) and its predecessor companies
Sanofi and Sterling Winthrop. From 1980 to 1987, Mr.&nbsp;Welch was with American Critical Care, a division of American Hospital Supply. Mr.&nbsp;Welch has served on the board of directors of
Hyperion Therapeutics,&nbsp;Inc. since August&nbsp;2012 and on the board of directors of Seattle Genetics since 2006, Mr.&nbsp;Welch holds a B.B.A. from the University of Miami and an M.B.A.
from the University of North Carolina. Our board believes that Mr.&nbsp;Welch's deep
understanding of operational and financial aspects of pharmaceutical companies qualify him to serve as a member of the board. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Appointment of Officers  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our
directors or executive officers. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Board Composition  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of
nine members. Our current certificate of incorporation and a voting agreement among certain investors provide for up to six directors to be designated by holders of our preferred stock.
Mr.&nbsp;Eastman, Dr.&nbsp;Gardner and Mr.&nbsp;Welch are the board designees of holders of our preferred stock and the remaining seats reserved for designees of holders of the preferred stock
are vacant. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
voting agreement and the provisions of our certificate of incorporation by which Mr.&nbsp;Eastman, Dr.&nbsp;Gardner and Mr.&nbsp;Welch were elected will terminate in connection with our
initial public offering and there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification
of his or her successor, or his or her earlier death, resignation or removal. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Because
Mr.&nbsp;Eastman and his affiliates beneficially own more than a majority of our outstanding voting power, we are eligible to be a "controlled company" under the corporate governance rules
of the NASDAQ Global Market. A company that avails itself of the controlled company exemption is not required to have a majority of its board of directors to be independent, nor is it required to have
a compensation committee, a nominating and corporate governance committee or an independent nominating function, among other stock exchange listing requirements for companies that are not controlled
companies. We have no current plans to avail ourselves of this exemption, and plan to comply with the stock exchange listing requirements for companies that are not controlled companies, but we could
elect in the future to avail ourselves of this exemption. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> Classified Board  </I></B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering provide for a classified
board of directors consisting of three classes of directors, each serving staggered three-year terms. Our directors will be divided among the three classes as
follows:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Class&nbsp;I directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2015, will consist
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Class&nbsp;II directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2016, will consist
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Class&nbsp;III directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2017, will consist
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. </FONT><FONT SIZE=2>

<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Directors in a particular class will be elected for three-year terms at the
annual meeting of stockholders in the year in which their terms expire. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms. Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation
or removal. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Our
restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering authorize only our board of directors to fill vacancies on our board of
directors. Any additional directorships resulting from an increase in the authorized number of directors would be distributed among the three classes so that, as nearly as possible, each class would
consist of one-third of the authorized number of directors. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See "Description of Capital Stock&#151;Anti-Takeover
Provisions&#151;Restated Certificate of Incorporation and Restated Bylaw Provisions." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Director Independence  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our common stock will be listed on the NASDAQ Global Market. The listing rules of this stock exchange generally require that a majority of the members
of a listed company's board of directors be independent within specified periods following the closing of an initial public offering. Our board of directors has determined that none of our
non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is
"independent" as that term is defined under the rules of the NASDAQ Global Market. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Audit
committee members must also satisfy the independence criteria set forth in Rule&nbsp;10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule&nbsp;10A-3, a
member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: accept, directly
or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or be an affiliated person of the listed company or any of its subsidiaries. We
intend to satisfy the audit committee independence requirements of Rule&nbsp;10A-3 within the one year transition period provided by Rule&nbsp;10A-3 and the current NASDAQ rules. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Board Committees  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our board of directors has established an audit committee, a compensation committee, and a nominating and governance committee. Each of these
committees will have the composition and responsibilities described below as of the closing of our initial public offering. Members serve on these committees until their resignations or until
otherwise determined by our board of directors. </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> Audit Committee  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our audit committee is comprised of Dr.&nbsp;Chaudhuri, Mr.&nbsp;Thomas and Mr.&nbsp;Greenwood. Mr.&nbsp;Greenwood is the chairman of our
audit committee. Dr.&nbsp;Chaudhuri and Mr.&nbsp;Thomas each meet the requirements for independence under the current NASDAQ and SEC rules and regulations. Each member of our audit committee is
financially literate. In addition, our board of directors has determined that Mr.&nbsp;Greenwood is an "audit committee financial expert" as defined in Item&nbsp;407(d)(5)(ii) of
Regulation&nbsp;S-K promulgated under the Securities Act. This designation does not impose on him any duties, obligations or liabilities that are greater than are generally imposed on members of our
audit committee and our board of directors. Our audit committee is directly responsible for, among other things:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>selecting the independent registered public accounting firm to audit our
financial statements; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>ensuring the independence of the independent registered public accounting
firm; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>discussing the scope and results of the audit with the independent
registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>establishing procedures for employees to submit anonymously concerns about
questionable accounting or audit matters; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>considering the adequacy of our internal controls and internal audit
function; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing material related party transactions or those that require
disclosure; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>approving or, as permitted, pre-approving all audit and non-audit services
to be performed by the independent registered public accounting firm. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Compensation Committee  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our compensation committee is comprised of Mr.&nbsp;Eastman, Mr.&nbsp;Thomas and Mr.&nbsp;Welch. Mr.&nbsp;Welch is the chairman of our
compensation committee. Each member of this committee meets the requirements for independence under the current NASDAQ and SEC rules and regulations and is an outside director, as defined pursuant to
Section&nbsp;162(m) of the Internal Revenue Code of 1984, as amended, or the Code. Our compensation committee is responsible for, among other
things:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing and approving, or recommending that our board of directors
approve, the compensation of our executive officers; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing and recommending to our board of directors the compensation of our
directors; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing and approving, or recommending that our board of directors
approve, the terms of any compensatory agreements with our executive officers; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>administering our stock and equity incentive plans; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing and approving, or making recommendations to our board of directors
with respect to, incentive compensation and equity plans; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing our overall compensation philosophy. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Nominating and Governance Committee  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our nominating and governance committee is comprised of Dr.&nbsp;Chaudhuri, Mr.&nbsp;Eastman and Mr.&nbsp;Welch. Dr.&nbsp;Chaudhuri is the
chairman of our nominating and governance committee. Each member of the nominating and governance committee meets the requirements for independence under the current NASDAQ rules and regulations. Our
nominating and governance committee is responsible for, among other things:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>identifying and recommending candidates for membership on our board of
directors; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>developing, reviewing and recommending our corporate governance guidelines
and policies; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>reviewing proposed waivers of the code of conduct for directors and
executive officers; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>assisting our board of directors on corporate governance matters. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
have made our committee charters available on our website at www.coriumgroup.com. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>110</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Compensation Committee Interlocks and Insider Participation  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any
entity that has one or more executive officers who served on our board of directors or compensation committee during fiscal 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Code of Business Ethics and Conduct  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In connection with our initial public offering, our board of directors will adopt a code of business ethics and conduct that will apply to all of our
employees, officers and directors. The full text of our code of business conduct will be posted on the Investor Relations section of our website. The reference to our website address in this
prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of business
conduct, or waivers of these provisions, on our website or in public filings. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Director Compensation  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table presents the total compensation earned in fiscal 2013 for each member of our board of directors, except for our CEO,
Mr.&nbsp;Staple, who receives no additional compensation for his service as a director. Other than as described in the table below, none of our directors, except Mr.&nbsp;Staple, received fees or
reimbursement of any expenses (other than customary expenses in connection with the attendance of meetings of our board of directors) or any equity or non-equity awards in fiscal 2013.
Mr.&nbsp;Staple's compensation is described below in the section titled "Executive Compensation." </FONT></P>

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<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:51pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Director Name

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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Fees Earned<BR>
or Paid in Cash<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Option Awards<BR>
($)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>All Other<BR>
Compensation<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bhaskar Chaudhuri</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>15,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>55,619</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>70,619</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gary W. Cleary</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>35,315</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(3)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>35,315</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ronald Eastman</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Phyllis Gardner</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>David Greenwood</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>109,063</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>223,607</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>62,361</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(4)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>395,031</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>John Kozarich</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,955</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(5)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>20,455</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert W. Thomas</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>19,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>19,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Daniel G. Welch</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">The
amounts reported in the Option Awards column represent the grant date fair market value of the stock options granted under the 2012 Equity
Incentive Plan during fiscal 2013 as computed in accordance with ASC&nbsp;718. The assumptions used in calculating the dollar amount recognized for financial statement reporting purposes of the
equity awards reported in this column are set forth in note&nbsp;11 to our financial statements included in this prospectus. Note that the amounts reported in the column reflect the accounting cost
for these stock options, and do not correspond to the actual economic value that may be received by the directors from the stock options.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">As
of September&nbsp;30, 2013, Mr.&nbsp;Greenwood held options to purchase up to 1,388,862 shares of common stock, Mr.&nbsp;Thomas held
options to purchase up to 359,650 shares of common stock and Dr.&nbsp;Chaudhuri, Dr.&nbsp;Gardner, Dr.&nbsp;Kozarich and Mr.&nbsp;Welch each held options to purchase up to 345,460 shares of
common stock.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Represents
compensation paid to Dr.&nbsp;Cleary for services as an employee. Dr.&nbsp;Cleary received no compensation for services as a
director.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(4)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Represents
compensation paid to Mr.&nbsp;Greenwood for services as an employee.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(5)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
the fair value of an option to purchase shares of common stock that was issued in an option exchange in November&nbsp;2012. </FONT></DD></DL>

<P style="font-family:arial;"><FONT SIZE=2>In January 2014, we granted stock options to most of our directors in order to bring their total equity grants to competitive levels. These option grants, other
than those made to Mr.&nbsp;Greenwood, vest monthly over a three-year period following the grant date of January&nbsp;26, 2014. Mr.&nbsp;Greenwood's option to purchase 325,000 shares of common
stock vests monthly over a four-year period following the date of grant of January&nbsp;27, 2014. Mr.&nbsp;Greenwood's option to purchase 250,000 shares of common stock vests monthly </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>111</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2>over
a four-year period following the effective date of our initial public offering. All of these option grants have an exercise price of $0.41 per share and were granted in the following amounts: </FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="117pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Name

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of Shares<BR>
Underlying Option Grants </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bhaskar Chaudhuri</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>80,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Phyllis Gardner</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>80,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>David Greenwood</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>575,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>John Kozarich</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>80,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert W. Thomas</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>80,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Daniel G. Welch</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>80,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2>Our board of directors adopted a compensation policy applicable to all of our non-employee directors for cash retainers. This compensation policy provides that
each such non-employee director will receive the following compensation for board of director services:</FONT></P>

<UL>
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<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>an annual cash retainer for serving on the board of directors of $12,000; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a fee of $1,500 paid for each board meeting attended; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a fee of $500 paid for each committee meeting attended; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a fee of $500 paid for each telephonic meeting attended. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>112</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ea47201_executive_compensation"> </A>
<A NAME="toc_ea47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  EXECUTIVE COMPENSATION    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following tables and accompanying narrative disclosure set forth information about the compensation provided to our senior executive officers
during fiscal 2013. These executive officers, who include our principal executive officer and the two other most highly-compensated executive officers who were serving as executive officers as of
September&nbsp;30, 2013, the end of our last completed fiscal year were:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Peter&nbsp;D. Staple, President, Chief Executive Officer and Director; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Robert&nbsp;S. Breuil, Chief Financial Officer; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Parminder Singh, Chief Technology Officer and Vice President, Research and
Development. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
refer to these individuals in this section as our "Named Executive Officers." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Summary Compensation Table  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table presents summary information regarding the total compensation for services rendered in all capacities that was awarded to, earned
by, and paid to our Named Executive Officers during fiscal 2013. </FONT></P>

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<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:101pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Name and Principal Position

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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Salary<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Option<BR>
Awards<BR>
($)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Non-equity<BR>
Incentive&nbsp;Plan<BR>
Compensation<BR>
($)<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>All Other<BR>
Compensation<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total<BR>
($) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Peter&nbsp;D. Staple<BR></FONT> <FONT SIZE=2><I>President, Chief Executive Officer and Director</I></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>418,591</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>319,816</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>3,619</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2><SUP>(3)</SUP></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>932,026</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert&nbsp;S. Breuil<BR></FONT> <FONT SIZE=2><I>Chief Financial Officer</I></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>343,942</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>291,600</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>7,595</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2><SUP>(4)</SUP></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>663,137</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Parminder Singh<BR></FONT> <FONT SIZE=2><I>Chief Technology Officer and Vice President, Research and Development</I></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>282,140</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>153,534</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2><SUP>(5)</SUP></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>2,859</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2><SUP>(6)</SUP></FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>488,533</FONT></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">The
amounts reported in the Option Awards column represent the grant date fair market value of the stock options granted to the Named
Executive Officers during fiscal 2013 as computed in accordance with ASC&nbsp;718. The assumptions used in calculating the dollar amount recognized for financial statement reporting purposes of the
equity awards reported in this column are set forth in note&nbsp;11 to our financial statements included in this prospectus. Note that the amounts reported in the column reflect the accounting cost
for these stock options, and do not correspond to the actual economic value that may be received by the Named Executive Officers from the options.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Bonuses
to be paid for fiscal 2013 have not yet been determined.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
life insurance premiums of $320 and contributions to the officer's 401(k) plan account of $3,299.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(4)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
pre-employment consulting fees of $7,275 and life insurance premiums of $320.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(5)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
the fair value of an option to purchase shares of common stock that was issued in an option exchange in November&nbsp;2012.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(6)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Includes
life insurance premiums of $320 and contributions to the officer's 401(k) plan account of $2,539. </FONT></DD></DL>

<P style="font-family:arial;"><FONT SIZE=2>In January 2014, the compensation committee of our board of directors granted stock options to each of our Named Executive Officers, as well as to a significant
number of our other employees. The grants to our Named Executive Officers, in connection with the determination of their total compensation, were intended to strengthen the long-term component of each
such officer's compensation, provide further retention incentives for these officers and emphasize incentive-based compensation. The January 2014 option grants </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>113</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>vest
monthly over a four-year period following the grant date of January&nbsp;27, 2014, have an exercise price of $0.41 per share, and were granted to each of our Named Executive Officers in the
following amounts: </FONT></P>

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<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="117pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of Shares<BR>
Underlying Option Grants </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Peter D. Staple</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,280,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert S. Breuil</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>420,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Parminder Singh</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>350,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<P style="font-family:arial;"><FONT SIZE=2><B> Outstanding Equity Awards at Year-End Table  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table provides information regarding each unexercised stock option held by our Named Executive Officers as of September&nbsp;30, 2013. </FONT></P>

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<TD WIDTH="69pt" style="font-family:arial;"></TD>
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<TD WIDTH="75pt" style="font-family:arial;"></TD>
<TD WIDTH="14pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="63pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="65pt" style="font-family:arial;"></TD>
<TD WIDTH="28pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="69pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Option Awards </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Grant Date </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Vesting<BR>
Commencement<BR>
Date </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of<BR>
Securities<BR>
Underlying<BR>
Unexercised<BR>
Options<BR>
Exercisable </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of<BR>
Securities<BR>
Underlying<BR>
Unexercised<BR>
Options<BR>
Unexercisable </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Option<BR>
Exercise<BR>
Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Option<BR>
Expiration<BR>
Date </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Peter&nbsp;D. Staple</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>08/26/2008</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>03/26/2008</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,578,600</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>08/25/2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>81,164</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>351,715</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(1)</SUP><SUP>(2)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/12/2022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


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</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>N/A</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,111,089</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(3)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/12/2022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/20/2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/20/2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63,128</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>369,751</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(2)</SUP><SUP>(4)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/19/2023</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert&nbsp;S. Breuil</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
09/04/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
450,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
1,350,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR><SUP>(1)</SUP><SUP>(2)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
12/12/2022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


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 Parminder Singh</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
07/21/2004</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
09/30/2003</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
30,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
0.234</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
07/20/2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>09/30/2004</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>03/31/2004</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>30,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.234</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>09/29/2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/12/2008</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/12/2008</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>150,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/11/2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11/12/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>N/A</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>440,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(5)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11/11/2022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/13/2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>276,250</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(4)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12/12/2022</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


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</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/20/2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/20/2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>49,583</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>290,417</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(4)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>02/19/2023</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Shares
subject to the stock options vest over a four year period, with 1/4<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">th</font>&nbsp;of the shares vesting on the first
anniversary of the vesting commencement date and 1/48<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">th</font>&nbsp;of the shares vesting each month following the first anniversary of the vesting commencement date, subject to continued
service with us through each vesting date.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Shares
subject to the stock options vest 100% upon a qualifying termination of the officer's employment with us following a change in control,
as described under "&#151;Potential Payments upon Termination or Change of Control."
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Shares
subject to the stock options vest 100% upon certain events occurring not later than July&nbsp;13, 2015.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(4)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Shares
subject to the stock options vest over a four year period, with 1/48<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">th</font>&nbsp;of the shares vesting each month following
the vesting commencement date, subject to continued service with us through each vesting date.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(5)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">These
shares were issued in connection with the November&nbsp;12, 2012 stock option exchange and were fully vested at the time of the
exchange. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>114</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B> Offer Letters and Employment Arrangements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Mr.&nbsp;Staple's Employment Offer Letter  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>On March&nbsp;14, 2008, we entered into an employment offer letter with Mr.&nbsp;Staple in connection with his appointment as our President and
Chief Executive Officer. His employment agreement provided for an annual base salary of $375,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and
other employee benefits as we established for our employees from time to time. In addition, we committed to grant him an option to purchase 3,537,214 shares of our common stock, with an exercise price
equal to the fair market value of our common stock on the date of grant. Mr.&nbsp;Staple's employment offer was subject to his execution of our standard employee proprietary information and
inventions assignment agreement. Mr.&nbsp;Staple's offer letter provides for "at will" employment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we terminate Mr.&nbsp;Staple's employment within one year of a liquidation event (as defined in his offer letter) without cause (as defined in his offer letter), or if after a liquidation event,
Mr.&nbsp;Staple resigns for good reason (as defined in his offer letter) and he delivers a release of claims agreement in a form satisfactory to us, he would be entitled to 12 months of his then
current annual salary as well as a bonus amount (as defined in his offer letter) and we would pay for (or provide cash payments equal to) the monthly medical insurance premium under COBRA for 12
months. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Mr.&nbsp;Breuil's Employment Offer Letter  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>On August&nbsp;28, 2012, we entered into an employment offer letter with Mr.&nbsp;Breuil in connection with his appointment as our Chief Financial
Officer. His employment agreement provided for an annual base salary of $340,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee
benefits as we established for our employees from time to time. In addition, we committed to grant him an option to purchase 1,400,000 shares of our common stock, with an exercise price equal to the
fair market value of our common stock on the date of grant. Mr.&nbsp;Breuil's employment offer was subject to his execution of our standard employee proprietary information and inventions assignment
agreement. Mr.&nbsp;Breuil's offer letter provides for "at will" employment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we terminate Mr.&nbsp;Breuil's employment within one year of a liquidation event (as defined in his offer letter) without cause (as defined in his offer letter), or if after a liquidation event,
Mr.&nbsp;Breuil resigns for good reason (as defined in his offer letter) and he delivers a release of claims agreement in a form satisfactory to us, he would be entitled to 12 months of his then
current annual salary as well as a bonus amount (as defined in his offer letter) and we would pay for (or provide cash payments equal to) the monthly medical insurance premium under COBRA for 12
months. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Potential Payments upon Termination or Change in Control  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Named Executive Officers are eligible to receive certain severance payments and benefits in connection with a termination of employment under
various circumstances, including following a change in control of our company. The actual amounts that would be paid or distributed to an eligible Named Executive Officer as a result of a termination
of employment occurring in the future may be different than those presented below as many factors will affect the amount of any payments and benefits upon a termination of employment. For example,
some of the factors that could affect the amounts payable include the Named Executive Officer's base salary and the market price of our common stock. Although we have entered into a written agreement
to provide severance payments and benefits in connection with a termination of employment under particular circumstances, we, or an acquirer, may mutually agree with the Named Executive Officers to
provide payments and benefits on terms that vary from those currently contemplated. In addition to the amounts presented below, each Named Executive Officer would also be able to exercise any
previously-vested stock options
that he held. Finally, the Named Executive Officers are eligible to receive any benefits accrued under our broad-based benefit plans, such as accrued vacation pay, in accordance with those plans and
policies. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>115</FONT></P>

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<UL>

<P style="font-family:arial;"><FONT SIZE=2><I> Involuntary Termination of Employment in Connection with a Change in Control  </I></FONT></P>

</UL>

<P style="font-family:arial;"><FONT SIZE=2>In the event of an involuntary termination of employment without "cause" within one year of a liquidation event or if after a liquidation event the
Named Executive Officer resigns for "good reason", the Named Executive Officers are eligible to receive the following payments and benefits:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>a lump-sum payment equal to his then-annual base salary for a period of 12
months from the date of termination; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>health insurance premiums for himself and his eligible dependents under our
group health insurance plans as provided under COBRA until the earliest of (i)&nbsp;the close of the 12-month period commencing on the date of his termination of employment, (ii)&nbsp;the
expiration of his eligibility for continued coverage under COBRA or (iii)&nbsp;the date when he becomes eligible for substantially equivalent health insurance coverage in connection with new
employment or self-employment; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>our Chief Executive Officer and Chief Financial Officer each will receive a
bonus opportunity without regard to achievement of any corporate performance goals. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>The
receipt of any payment termination-based payments or benefits is subject to the Named Executive Officer executing (and not subsequently revoking) a waiver and release of claims in favor of us. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
addition, in the event of an involuntary termination of employment (a termination of employment by us without "cause" or by the Named Executive Officer for "good reason") within one year following
a liquidation event the
outstanding equity awards of our Chief Executive Officer and Chief Financial Officer will vest with respect to 100% of the shares. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Employee Benefit Plans  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> 2002 Stock Option Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our 2002 Stock Option Plan was adopted by our board of directors in February&nbsp;2002 and approved by our stockholders in May&nbsp;2002 and
terminated in 2012 when it was replaced by our 2012 Equity Incentive Plan. Accordingly, as of December&nbsp;31, 2013, there are no shares of our common stock available for issuance under our 2002
Stock Option Plan. The 2002 Stock Option Plan continues to govern the stock options granted thereunder. As of December&nbsp;31, 2013, options to purchase 137,030 of these shares had been exercised
and options to purchase 5,422,524 of these shares remained outstanding. The options outstanding as of December&nbsp;31, 2013 had a weighted-average exercise price of $0.21 per share. Following the
completion of this offering, any outstanding options granted under the 2002 Stock Option Plan will remain outstanding, subject to the terms of our 2002 Stock Option Plan and stock option agreements,
until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2002 Stock Option Plan have terms similar to those described below with respect
to options to be granted under our 2014 Equity Incentive Plan. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> StrataGent 2003 Stock Option Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In connection with our acquisition of StrataGent life Sciences,&nbsp;Inc. in September&nbsp;2007, we assumed options granted under the
StrataGent,&nbsp;Inc. 2003 Stock Plan, or the StrataGent Plan, held by StrataGent employees who continued employment with us after the closing, and converted them into options to purchase shares of
our common stock. The StrataGent Plan was terminated on the closing of the acquisition, but the StrataGent Plan will continue to govern the terms of options we assumed in the acquisition. As of
December&nbsp;31, 2013, options to purchase 46,053 shares of our common stock remained outstanding under the StrataGent Plan at a weighted-average exercise price of approximately $0.07 per share.
Our compensation committee currently administers the StrataGent Plan. 2012 Equity Incentive Plan. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>116</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B><I> 2012 Equity Incentive Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our 2012 Equity Incentive Plan was adopted by our board of directors in November&nbsp;2012 and approved by our stockholders in February&nbsp;2013.
The 2012 Equity Incentive Plan provides for the grant of incentive stock options, which qualify for favorable tax treatment to their recipients under Section&nbsp;422 of the Code, nonstatutory stock
options, restricted stock units, and stock appreciation rights, as well as for the issuance of shares of restricted stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of December&nbsp;31, 2013, we had reserved 12,536,557 shares of our common stock for issuance under our 2012 Equity Incentive Plan. As of December&nbsp;31, 2013, options to purchase 40,750 of
these shares had been exercised (of which none have been repurchased and returned to the pool of shares reserved for issuance under the 2012 Equity Incentive Plan), options to purchase 9,985,789 of
these shares remained outstanding. In January 2014, our board of directors and stockholders approved an increase of 2,750,000 shares to the option pool, bringing the total number of shares of our
common stock reserved for issuance under the 2012 Equity Incentive Plan to 15,286,557. As of March&nbsp;3, 2014, 542,018 of these shares remained available for future grant. The options outstanding
as of December&nbsp;31, 2013 had a weighted-average exercise price of $0.22 per share. We will cease issuing awards under our 2012 Equity Incentive Plan upon the implementation of our 2014 Equity
Incentive Plan. Our 2014 Equity Incentive Plan will be effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options under the 2012
Equity Incentive Plan following that date, and the 2012 Equity Incentive Plan will terminate at that time. However, any outstanding options granted under the 2012 Equity Incentive Plan will remain
outstanding, subject to the terms of our 2012 Equity Incentive Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options
granted under the 2012 Equity Incentive Plan have terms similar to those described below with respect to options to be granted under our 2014 Equity Incentive Plan. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> 2014 Equity Incentive Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We will adopt a 2014 Equity Incentive Plan that will become effective on the date immediately prior to the date of this prospectus and will serve as
the successor to our 2012 Equity Incentive Plan. We reserved&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock to be issued under our 2014 Equity Incentive Plan. In addition, shares
that were not issued
under our 2012 Equity Incentive Plan will be available for grant and issuance under our 2014 Equity Incentive Plan. The number of shares reserved for issuance under our 2014 Equity Incentive Plan will
increase automatically on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of each
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;through&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by the number of shares equal
to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total outstanding shares of our common stock as of
the immediately preceding December&nbsp;31. However, our board of
directors or compensation committee may reduce the amount of the increase in any particular year. In addition, the following shares will again be available for grant and issuance under our 2014 Equity
Incentive Plan:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares subject to options or stock appreciation rights granted under our
2014 Equity Incentive Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option or stock appreciation right; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares subject to awards granted under our 2014 Equity Incentive Plan that
are subsequently forfeited or repurchased by us at the original issue price; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares subject to awards granted under our 2014 Equity Incentive Plan that
otherwise terminate without shares being issued; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares surrendered, cancelled, or exchanged for cash or a different award
(or combination thereof); </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares reserved but not issued or subject to outstanding grants under our
2012 Equity Incentive Plan on the date of this prospectus; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares issuable upon the exercise of options or subject to other awards
under our 2012 Equity Incentive Plan or 2002 Stock Option Plan prior to the date of this prospectus that cease to be subject to such options or other awards by forfeiture or otherwise after the date
of this prospectus; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares issued under our 2012 Equity Incentive Plan or 2002 Stock Option Plan
that are forfeited or repurchased by us after the date of this prospectus; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>117</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>shares subject to awards under our 2012 Equity Incentive Plan or 2002 Stock
Option Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan authorizes the award of stock options, restricted stock awards (RSAs), stock appreciation rights (SARs), restricted stock units (RSUs), performance awards and stock
bonuses. No person will be eligible to receive more than&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares in any calendar year under our 2014 Equity Incentive Plan other than a new employee of ours, who
will be eligible to
receive no more than&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares under the plan in the calendar year in which the employee commences employment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of
directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2014 Equity Incentive Plan, grant awards and make all other
determinations necessary or advisable for the administration of the plan. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors,
directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair
market value of our common stock on the date of grant. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
anticipate that in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to
be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options
granted under our 2014 Equity Incentive Plan is ten years. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>An
RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price (if any) of an RSA will be
determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the participant no longer provides services to
us and unvested shares will be forfeited to or repurchased by us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Stock
appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the
date of exercise and the stated exercise price up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Restricted
stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure
to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the restricted stock unit whole shares of
our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1&nbsp;million limitation
on the income tax deductibility of compensation paid per covered executive officer imposed by Section&nbsp;162(m) of the Internal Revenue Code. To help assure that the compensation attributable to
performance-based awards will so qualify, our compensation committee can structure such awards so that the stock or cash will be issued or paid pursuant to such award only following the achievement of
specified pre-established performance goals during a designated performance period. These awards are subject to forfeiture prior to settlement because of termination of employment or failure to
achieve the performance conditions. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>118</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>Stock
bonuses may be granted as additional compensation for service or performance, and therefore, not be issued in exchange for cash. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number of shares
reserved under our 2014 Equity Incentive Plan, the maximum number of shares that can be granted in a calendar year, and the number of shares and exercise price, if applicable, of all outstanding
awards under our 2014 Equity Incentive Plan. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Awards
granted under our 2014 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee.
Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative.
Options granted under our 2014 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee's service to us, for a period of 12 months in the
case of death or for a period of six months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of
employment for cause. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan provides that in the event of a specified corporate transaction, including without limitation a consolidation, merger, or similar transaction involving our company, the
sale, lease or other disposition of all or substantially all of the assets of our company or the consolidated assets of our company and our subsidiaries, or a sale or disposition of at least 50% of
the outstanding capital stock of our company, the administrator will determine how to treat each outstanding stock award. The administrator may:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>arrange for the assumption, continuation or substitution of a stock award by
a successor corporation; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>arrange for the assignment of any reacquisition or repurchase rights held by
us to a successor corporation; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>accelerate the vesting of the stock award and provide for its termination
prior to the effective time of the corporate transaction; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>arrange for the lapse, in whole or in part, of any reacquisition or
repurchase right held by us; or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>cancel the stock award prior to the transaction in exchange for a cash
payment, which may be reduced by the exercise price payable in connection with the stock award. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>The
administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. The administrator may take different actions with
respect to the vested and unvested portions of a stock award. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
2014 Equity Incentive Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. Our board of directors may
amend or terminate our 2014 Equity Incentive Plan at any time. If our board of directors amends our 2014 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless
required by applicable law. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> 2014 Employee Stock Purchase Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We will adopt a 2014 Employee Stock Purchase Plan in order to enable eligible employees to purchase shares of our common stock at a discount following
the date of this offering. Purchases will be accomplished through participation in discrete offering periods. Our 2014 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase
plan under Section&nbsp;423 of the Code. We initially reserved&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock for issuance under our 2014 Employee Stock Purchase Plan. The number of
shares reserved for
issuance under our 2014 Employee Stock Purchase Plan will increase automatically on the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;day
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of each of the
first&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;calendar years following the first
offering date by the number of shares equal to the greater of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total outstanding </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>119</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>shares
of our common stock as of the immediately preceding December&nbsp;31st (rounded to the nearest whole share) or the actual number of shares purchased under the 2014 Employee Stock Purchase
Plan in the immediately preceding fiscal year. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares
issued over the term of our 2014 Employee Stock Purchase Plan will not exceed&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our
compensation committee will administer our 2014 Employee Stock Purchase Plan. Our employees generally are eligible to participate in our 2014 Employee Stock Purchase Plan; our compensation
committee may in its discretion elect to exclude employees who workless than 20&nbsp;hours per week or less than five months in a calendar year. Employees who are 5% stockholders, or would become 5%
stockholders as a result of their participation in our 2014 Employee Stock Purchase Plan, are ineligible to participate in our 2014 Employee Stock Purchase Plan. We may impose additional restrictions
on eligibility. Under our 2014 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible
employees will be able to select a rate of payroll deduction between 1% and 15% of their eligible cash compensation. We will also have the right to amend or terminate our 2014 Employee Stock Purchase
Plan at any time. Our 2014 Employee Stock Purchase Plan will terminate on the tenth anniversary of the last day of the first purchase period, unless it is terminated earlier by our board of directors. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>When
an initial purchase period commences, our employees who meet the eligibility requirements for participation in that purchase period will automatically be granted a nontransferable option to
purchase shares in that purchase period. For subsequent purchase periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic
in subsequent purchase periods. Each purchase period will run for no more than six months. An employee's participation automatically ends upon termination of employment for any reason. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Except
for the first purchase period, each purchase period will be for six months (commencing
each&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;). The first purchase period will begin upon the effective date of
this offering and will end on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2014. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>No
participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar
year(s), that has a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no
participant will be permitted to purchase more than 2,500 shares during any one purchase period or such lesser amount determined by our compensation committee. The purchase price for shares of our
common stock purchased under our 2014 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i)&nbsp;the first trading day of the applicable offering
period and (ii)&nbsp;the last trading day of each purchase period in the applicable offering period. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new
purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and our 2014 Employee Stock Purchase Plan will then terminate on the closing of the
proposed change in control. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> 401(k) Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We sponsor a retirement plan intended to qualify for favorable tax treatment under Section&nbsp;401(k) of the Code. Eligible employees may make
pre-tax contributions to the plan from their eligible earnings up to the limit under Section&nbsp;402(g) of the Code. Participants who are 50&nbsp;years of age or older may contribute additional
amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants to the plan and the income earned on those contributions are generally not taxable to
participants until withdrawn. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee's interest in his or her pre-tax deferrals is
100% vested </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>120</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>when
contributed. Our board of directors approved a discretionary employer match equal to 15% of employee's elective deferrals up to a maximum of 6% of the participants' compensation. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Limitations on Liability and Indemnification Matters  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our restated certificate of incorporation will contain provisions that limit the liability of our directors for monetary damages to the fullest extent
permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability
for the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>for any breach of their duty of loyalty to our company or our stockholders; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>for any act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided in Section&nbsp;174 of the Delaware General Corporation Law; or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>for any transaction from which they derived an improper personal benefit. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Our
restated bylaws will provide that we shall indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or
proceeding, by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. Our restated bylaws will provide that we may indemnify our employees or agents. Our restated bylaws will also provide that we must advance expenses incurred by or
on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Prior
to the completion of this offering, we intend to obtain insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against
loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to
payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Prior
to completion of this offering, we also intend to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers against liabilities
that may arise by reason of their status or service. These indemnification agreements may also require us to advance all expenses incurred by the directors and executive officers in investigating or
defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>At
present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as
a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened
litigation that may result in claims for indemnification. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act of 1933, as
amended, or the Securities Act, or otherwise. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have
been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. </FONT></P>

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<BR></FONT><FONT SIZE=2><B>  RELATED PARTY TRANSACTIONS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In addition to the executive officer and director compensation arrangements discussed above under "Executive Compensation," below we describe
transactions since October&nbsp;1, 2010 to which we have been a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our directors,
executive officers or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or
indirect material interest or such other persons as may be required to be disclosed pursuant to Item&nbsp;404 of Regulation&nbsp;S-K, which we refer collectively refer to as related parties. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Indebtedness  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In June and November&nbsp;2008, we entered into certain note and warrant purchase agreements pursuant to which we issued to certain investors,
including Essex Woodlands, our largest stockholder and an entity affiliated with Ronald Eastman, a member of our board of directors, secured convertible notes. Essex Woodlands purchased convertible
notes with an aggregate principal amount of $20.0&nbsp;million, $10.0&nbsp;million of which we repaid in August&nbsp;2012. The amounts outstanding under the notes are collateralized by a
security interest in all our assets, subordinated to the interests of our senior debt. In September&nbsp;2012, we amended and restated these convertible notes and delivered to Essex Woodlands a new
amended and restated convertible note with a remaining principal amount of $10.0&nbsp;million, which matures on July&nbsp;1, 2017. Interest accrues on the convertible note at a rate of 10% per
annum, and pursuant to an intercreditor agreement, we are not permitted to pay any interest on the convertible note until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
May&nbsp;2009, we entered into a note purchase agreement pursuant to which we issued to Essex Woodlands a subordinated secured promissory note with an aggregate principal amount of
$13.0&nbsp;million. The amount outstanding under the note is collateralized by a security interest in all our assets, subordinated to the interests of our senior debt. In September&nbsp;2012, we
amended and restated this note and delivered to Essex Woodlands a new amended and restated subordinated note with the same aggregate principal amount, which matures on July&nbsp;1, 2017. The
aggregate principal amounts and accrued interest of $18.5&nbsp;million and $15.7&nbsp;million held by Essex Woodlands under their convertible notes and the subordinated note, respectively, will be
converted into an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock immediately prior to this offering, and the notes will be
terminated, as described in "&#151;Recapitalization." </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Stock Repurchases  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In September&nbsp;2007, we entered into two repurchase agreements pursuant to which we agreed to repurchase 3,270,469 shares of our common stock at
a repurchase price of $0.9173 per share from a trust affiliated with Gary Cleary, a member of our board of directors, or the Cleary Trust, and from Adrian Faasse, one of our founders and former Chief
Executive Officer. Pursuant to the terms of these repurchase agreements, we had an outstanding obligation upon the occurrence of certain specified events to repurchase 1,333,939 and 2,180,313 shares
of common stock from the Cleary Trust and Mr.&nbsp;Faasse, respectively. These repurchase obligations will be satisfied in full in connection with the recapitalization described in
"&#151;Recapitalization." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Recapitalization  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In December&nbsp;2013, we entered into an amendment and conversion agreement with Essex Woodlands pursuant to which we and Essex Woodlands
(i)&nbsp;amended the convertible notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of our common stock immediately prior
to the closing of this offering or into 20,569,231 shares of our Series&nbsp;C preferred stock immediately prior to the first closing of a qualified equity financing that occurs prior to the closing
of this offering; (ii)&nbsp;amended the terms of the subordinated note to provide that it will automatically convert either into 34,210,182 shares of our common stock immediately prior to the
closing of this offering or into 34,210,182 shares of a new series of our preferred stock (with identical rights, preferences and privileges </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>as
our Series&nbsp;C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs
prior to the closing of this offering; and (iii)&nbsp;requires Essex Woodlands to effect the automatic conversion of all outstanding shares of our preferred stock in connection with the completion
of this offering. In connection with the completion of this offering, we will issue to Essex Woodlands a total of 54,409,154 shares of common stock pursuant to the terms of this agreement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Simultaneously,
we also entered into a repurchase agreement pursuant to which we agreed to repurchase 5,019,755 and 5,866,129 shares of our common stock for an aggregate repurchase price of
$2.2&nbsp;million and $3.0&nbsp;million from the Cleary Trust and Mr.&nbsp;Faasse, respectively. These repurchases will occur immediately prior to the earlier of the closing of this offering and
the first closing of a qualified equity financing, and these repurchases will satisfy in full all of our remaining obligations under the repurchase agreements described in "&#151;Stock
Repurchases." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Warrant Amendments  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In November&nbsp;2012, we amended outstanding warrants to purchase 11,787,394 shares of our common stock from various dates beginning in
June&nbsp;2013 through November&nbsp;2013 to extend the expiration date of the warrants to August&nbsp;2017. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Employment Agreements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have entered into employment arrangements with our executive officers, as more fully described in "Executive Compensation." </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Equity Grants to Executive Officers and Directors  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have granted stock options to our executive officers and directors, as more fully described in the section entitled "Executive Compensation." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Loans to Executive Officers  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In June&nbsp;2013, Parminder Singh, our Chief Technology Officer and Vice President, Research and Development, delivered to us a full recourse
promissory note in the aggregate principal amount of $100,000 with an annual interest rate of 2.25%, compounded semi-annually. The note had a maturity date of December&nbsp;2015, with respect to
half of the principal balance and any accrued and unpaid interest on such date, and June&nbsp;2018, with respect to the remaining principal and any accrued and unpaid interest. The balance of the
note was fully repaid in February 2014. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
August&nbsp;2004, Gary Cleary delivered to us a note in the aggregate principal amount of $700,000 with an annual interest rate of 2.25%, compounded monthly. The balance of the note was fully
repaid in September&nbsp;2012. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Indemnification Agreements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have entered into indemnification agreements with each of our directors and executive officers, as described in "Executive
Compensation&#151;Limitation on Liability and Indemnification Matters." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Review, Approval or Ratification of Transactions with Related Parties  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The charter of our Audit Committee requires that any transaction with a related party that must be reported under applicable rules of the SEC, other
than compensation related matters, must be reviewed and approved or ratified by our Audit Committee. We intend to adopt a written related person transactions policy that our executive officers,
directors, nominees for election as a director, beneficial owners of more than 5% of our common stock, and any members of the immediate family of and any entity affiliated with any of the foregoing
persons, are not permitted to enter into a material related person transaction with us without the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>123</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>review
and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a
conflict of interest. We expect the policy to provide that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of
more than 5% of our common stock or with any of their immediate family members or affiliates in which the amount involved exceeds $120,000 will be presented to our audit committee for review,
consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee will consider the relevant facts and circumstances available and deemed relevant to the
audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar
circumstances and the extent of the related person's interest in the transaction. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>124</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ee47201_principal_stockholders"> </A>
<A NAME="toc_ee47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  PRINCIPAL STOCKHOLDERS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December&nbsp;31, 2013, and as
adjusted to reflect the sale of common stock offered by us in this offering, for:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>each stockholder known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>each of our directors; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>each of our Named Executive Officers; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>all of our directors and executive officers as a group. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>We
have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and
entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Shares
beneficially owned prior to the offering is based on 58,581,294 shares of common stock outstanding at December&nbsp;31, 2013, assuming conversion of all outstanding shares of preferred stock
into an aggregate of 36,034,900 shares of our common stock. Shares beneficially owned after the offering also assumes (i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock that will
be issued by us in
this offering, (ii)&nbsp;54,779,413 shares of common stock issued immediately prior to the closing of this offering in connection with the recapitalization, and (iii)&nbsp;10,885,884 shares of
common stock to be repurchased from our founders immediately prior to the closing of this offering in connection with the recapitalization. In computing the number of shares of common stock
beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently
exercisable or that will become exercisable within 60&nbsp;days of December&nbsp;31, 2013. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership
of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o&nbsp;Corium International,&nbsp;Inc., 235&nbsp;Constitution Drive, Menlo
Park, California 94025. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>125</FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="18pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="16pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="78pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Beneficially Owned<BR>
Prior to the Offering </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Beneficially Owned<BR>
After the Offering<font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(14)</font> </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:93pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Name of Beneficial Owner

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Percent </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Percent </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>5% or Greater Stockholders</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Essex Woodlands<SUP>(1)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>39,622,954</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>55.92</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Adrian Faasse,&nbsp;Jr.<SUP>(2)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>8,799,194</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>15.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gary&nbsp;W. Cleary and Nobuko Saito Cleary, Trustees of the Cleary-Saito Family Trust U/D/T dated September&nbsp;4, 1996</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,952,820</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13.58</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Barr Laboratories</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>5,839,883</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9.97</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Directors and Named Executive Officers</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Peter&nbsp;D. Staple<SUP>(3)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,813,075</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6.11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert&nbsp;S. Breuil<SUP>(4)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>637,500</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1.08</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Parminder Singh<SUP>(5)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>834,166</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1.40</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bhaskar Chaudhuri<SUP>(6)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>273,489</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gary&nbsp;W. Cleary<SUP>(7)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,952,820</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13.58</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ronald Eastman<SUP>(8)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>39,622,954</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>55.92</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Phyllis Gardner<SUP>(9)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>345,460</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>David Greenwood<SUP>(10)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>434,422</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>John Kozarich<SUP>(11)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>345,460</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Robert&nbsp;W. Thomas<SUP>(12)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>359,650</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Daniel&nbsp;G. Welch<SUP>(13)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>345,460</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>All executive officers and directors as a group (11&nbsp;persons)<SUP>(14)</SUP></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>54,964,456</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>70.24</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">*</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Less
than 1%.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of 27,344,992 shares held by Essex Woodlands Health Ventures Fund&nbsp;VII,&nbsp;L.P. (EWHV&nbsp;VII) and
(ii)&nbsp;12,277,962 shares issuable subject to warrants which are exercisable within 60&nbsp;days of December&nbsp;31, 2013 held by EWHV&nbsp;VII. Mr.&nbsp;Eastman, one of our directors, is
a managing partner of Essex Woodlands Health Ventures L.P. which is the sole general partner of EWHV&nbsp;VII, and Mr.&nbsp;Eastman may be deemed to share voting and investment power over these
shares. Dr.&nbsp;Gardner, one of our directors is an adjunct partner of Essex Woodlands Health Ventures and does not beneficially own any of these shares. Shares beneficially owned after the
offering include the issuance of 54,409,154 shares of common stock to EWHV&nbsp;VII in connection with the recapitalization.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Shares
beneficially owned after the offering reflects the repurchase of 5,886,129 shares of common stock from Adrian Faasse, Jr., in
connection with the recapitalization.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Mr.&nbsp;Staple that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(4)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Mr.&nbsp;Breuil that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(5)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Dr.&nbsp;Singh that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(6)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Dr.&nbsp;Chaudhuri that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(7)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares held by Gary&nbsp;W. Cleary and Nobuko Saito Cleary, Trustees of the Cleary-Saito Family Trust U/D/T dated
September&nbsp;4, 1996 of which Dr.&nbsp;Cleary may be deemed to have investment and voting power. Shares beneficially owned after the offering reflects the repurchase of 5,019,755 shares of
common stock by us in connection with the capitalization.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(8)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">See
footnote&nbsp;1.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(9)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Dr.&nbsp;Gardner that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(10)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Mr.&nbsp;Greenwood that are exercisable within 60&nbsp;days of December&nbsp;31, 2013. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>126</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(11)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Dr.&nbsp;Kozarich that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(12)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Mr.&nbsp;Thomas that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(13)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of shares subject to options held by Mr.&nbsp;Welch that are exercisable within 60&nbsp;days of December&nbsp;31, 2013.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(14)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Consists
of (i)&nbsp;35,297,812 shares outstanding; (ii) 12,277,962 shares issuable subject to warrants which are exercisable within 60
days of December&nbsp;31, 2013 and (iii)&nbsp;7,388,682 shares subject to options that are exercisable within 60&nbsp;days of December&nbsp;31, 2013. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>127</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

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<A NAME="toc_eg47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  DESCRIPTION OF CAPITAL STOCK    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon the completion of our initial public offering, our authorized capital stock will consist of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, $0.001 par
value per share, and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of undesignated preferred stock, $0.001 par value per share. A description of the material terms and provisions of our restated
certificate of incorporation
and restated bylaws that will be in effect at the closing of our initial public offering and affecting the rights of holders of our capital stock is set forth below. The description is intended as a
summary, and is qualified in its entirety by reference to the form of our restated certificate of incorporation and the form of our restated bylaws to be adopted in connection with our initial public
offering that will be filed with the registration statement relating to this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of December&nbsp;31, 2013, and after giving effect to the automatic conversion of all of our outstanding preferred stock into common stock and the automatic conversion of certain warrants into
shares of our common stock in connection with our initial public offering and the recapitalization, there were
outstanding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock held by approximately 52
stockholders; </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Common Stock  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Dividend Rights  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are
entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of
directors may determine. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Voting Rights  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Our
restated certificate of incorporation eliminates the right of stockholders to cumulate votes for the election of directors. Accordingly, holders of a majority of the shares of our common stock will be
able to elect all of our directors. Our restated certificate of incorporation to be in effect upon the closing of this offering establishes a classified board of directors, to be divided into three
classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective
three-year terms. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> No Preemptive or Similar Rights  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Right to Receive Liquidation Distributions  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the
holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares
of preferred stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Preferred Stock  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In connection with this offering, each currently outstanding share of preferred stock will convert into common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon
the closing of this offering, we will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions. Our board of
directors also can increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders.
Our board of directors may authorize the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>128</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>issuance
of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our
company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Warrants  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of December&nbsp;31, 2013, we had outstanding the following warrants to purchase shares of our capital stock: </FONT></P>

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<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:75pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Type of Capital Stock

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total Number<BR>
of Shares<BR>
Subject to<BR>
Warrants </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted Average<BR>
Exercise Price<BR>
Per Share </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Expiration Dates </B></FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.19</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>September 2018<SUP>(1)</SUP></FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;C preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,707,287</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><SUP>(2)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.90</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>October 2018-November 2021<SUP>(3)</SUP></FONT></TD>
</TR>
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<BR>
<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(1)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,993,643
of these shares subject to warrants with a weighted average exercise price of $0.19 are subject to automatic net exercise
connection with this offering.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(2)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Convert
automatically into warrants to purchase an aggregate of 1,707,287 shares of our common stock upon the conversion of our outstanding
preferred stock into common stock in connection with this offering. The holders of 1,024,746 of the shares issuable upon exercise of these warrants are entitled to piggyback and Form&nbsp;S-3
registration rights with respect to such shares as described in "&#151;Registration Rights."
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;"><font
style="font-size:6pt;position:relative;top:-2pt;add_sup:2pt;">(3)</font></FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">163,522
of these shares subject to warrants with an exercise price of $0.7384 are subject to automatic net exercise connection with this
offering. </FONT></DD></DL>


<P style="font-family:arial;"><FONT SIZE=2><B> Options  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of December&nbsp;31, 2013, 5,422,524, 46,053 and 9,985,789 shares of our common stock were issuable upon exercise of outstanding options under
our 2002 Stock Option Plan, the StrataGent Stock Plan and our 2012 Equity Incentive Plan, respectively. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Registration Rights  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>According to the terms of our amended and restated investors' rights agreement entered into in September 2007, certain investors are entitled to
demand, piggyback and Form&nbsp;S-3 registration rights. The stockholders who are a party to the investors' rights agreement will hold an aggregate
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, or&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%, of
our common stock upon the closing of this offering and the conversion of all existing series of our convertible preferred stock into shares of our common stock. Such stockholders have waived their
registration rights with respect to this offering. In addition, holders of outstanding warrants to purchase 1,024,746 shares of our Series&nbsp;C preferred stock are entitled to piggyback and
Form&nbsp;S-3 registration rights under that investors' rights agreement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Demand Registration Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The holders of at least 40% of the shares having demand registration rights have the right to make up to two demands that we
file&nbsp;a registration statement to register all or a portion of their shares. We may postpone the filing of a registration statement for up to 90&nbsp;days once in a 12-month period if our
board of directors determines that the filing would be detrimental to us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Piggyback Registration Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If we register any securities for public sale, holders of registration rights are entitled to written notice of the registration and
will have the right to include their shares in the registration statement. The underwriters of any offering will have the right to limit the number of shares having </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>129</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>registration
rights to be included in the registration statement, but not below 30% of the total number of shares included in the registration statement, unless such offering is our initial public
offering, in which case any and all shares held by selling stockholders may be excluded from the offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Form&nbsp;S-3 Registration Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If we are eligible to file&nbsp;a registration statement on Form&nbsp;S-3, the holders of the shares with registration
rights have the right to make up to two demands that we file&nbsp;a registration statement on Form&nbsp;S-3 during a twelve month period, so long as the aggregate value of the securities to be
sold under the registration statement on Form&nbsp;S-3 is at least $1,000,000. We may postpone the filing of a registration statement for up to 90&nbsp;days once in a 12-month period if our board
of directors determines that the filing would be detrimental to us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Expenses of Registration.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Generally, we are required to bear all registration and selling expenses incurred in connection with the demand, piggyback and
Form&nbsp;S-3 registrations described above, other than underwriting discounts and commissions, stock transfer taxes and fees of counsel for any holder other than the fees of a single special
counsel for the holders of registration rights not to exceed $50,000 or $25,000 in the case of a registration on Form&nbsp;S-3. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Expiration of Registration Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The demand, piggyback and Form&nbsp;S-3 registration rights discussed above will terminate five years following the closing of
this offering. In addition, the registration rights discussed above will terminate with respect to any stockholder entitled to these registration rights on the date when such stockholder is able to
sell all of its registrable common stock in a single 90-day period under Rule&nbsp;144 of the Securities Act. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Anti-Takeover Provisions  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Delaware Law  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We are governed by the provisions of Section&nbsp;203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents
some Delaware corporations, including us, from engaging, under some circumstances, in a business combination, which includes a merger or sale of at least 10% of the corporation's assets with any
interested stockholder, meaning a stockholder who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more
of the corporation's outstanding voting stock, unless:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the transaction is approved by the board of directors prior to the time that
the interested stockholder became an interested stockholder; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>at or subsequent to such time that the stockholder became an interested
stockholder, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock not
owned by the interested stockholder. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>A
Delaware corporation may "opt out" of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws
resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. We do not plan to "opt out" of these provisions. The statute could prohibit or delay mergers
or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>130</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><I> Restated Certificate of Incorporation and Restated Bylaw Provisions  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our restated certificate of incorporation and our restated bylaws to be in effect upon the closing of this offering will include a number of
provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Board of Directors Vacancies.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our
restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships. In addition, the number of directors constituting our board of
directors will be set only by resolution adopted by a majority vote of our entire board of directors. These provisions prevent a stockholder from increasing the size of our board of directors and
gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors, but promotes
continuity of management.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Classified Board.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our restated
certificate of incorporation and restated bylaws will provide that our board of directors is classified into three classes of directors. The existence of a classified board could delay a successful
tender offeror from obtaining majority control of our board of directors, and the prospect of that delay might deter a potential offeror.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Stockholder Action; Special Meeting of
Stockholders.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but
may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our restated bylaws or remove
directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Our restated bylaws will further provide that special meetings of our stockholders may be called
only by a majority of our board of directors, the chairman of our board of directors, our lead independent director, our chief executive officer or our president, thus prohibiting a stockholder from
calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any
action, including the removal of directors.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Advance Notice Requirements for Stockholder Proposals and Director
Nominations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual
meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also will specify certain requirements regarding the form and
content of a stockholder's notice. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual
meeting of stockholders. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or
otherwise attempting to obtain control of our company.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>No Cumulative Voting.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The Delaware
General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation's certificate of incorporation provides otherwise.
Our restated certificate of incorporation and restated bylaws will not provide for cumulative voting.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Issuance of Undesignated Preferred
Stock.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Our board of directors will have the authority, without further action by the stockholders, to issue up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissued shares of
preferred stock enables our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2><I>Super Majority Vote to Amend Certificate of Incorporation and
Bylaws.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Any amendment of the above provisions in our restated certificate of incorporation is expected to require approval by holders of
at least two-thirds of our outstanding common stock. The approval of a majority of the shares entitled to vote shall be required to amend any other provisions of our restated certificate of
incorporation or restated bylaws. </FONT></DD></DL>
</UL>
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<P style="font-family:arial;"><FONT SIZE=2><B> Choice of Forum  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any
derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law, our restated certificate of incorporation or our restated bylaws; any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation or our restated
bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Although we have included a choice of forum clause in our restated certificate of incorporation,
it is possible that a court could rule that such provision is inapplicable or unenforceable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Listing  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>We intend to apply to list our common stock on the NASDAQ Global Market under the symbol "CORI." </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Transfer Agent and Registrar  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The transfer agent and registrar for our common stock is Computershare Trust Company, N.A. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>132</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>  SHARES ELIGIBLE FOR FUTURE SALE    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Before our initial public offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares
of our common stock, including shares issued upon the exercise of outstanding options, in the public market after our initial public offering, or the possibility of these sales occurring, could cause
the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>After
our initial public offering, we will have outstanding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock, based on the number of shares outstanding as of December&nbsp;31, 2013. This
includes
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares that we are selling in this offering, which shares may be resold in the public market immediately, and assumes no additional exercise of outstanding
options other than as
described elsewhere in this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
remaining&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock that are not sold in this offering will be
"restricted securities," as that term is defined in Rule&nbsp;144 under the Securities Act. These
restricted securities are eligible for public sale only if
they are registered under the Securities Act or if they qualify for an exemption from registration under Rule&nbsp;144 or Rule&nbsp;701 under the Securities Act, which are summarized below. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, all or substantially all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to
specific exceptions, not to sell any of our stock for at least 180&nbsp;days following the date of this prospectus, as described below. As a result of these agreements, subject to the provisions of
Rule&nbsp;144 or Rule&nbsp;701,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares will be available for sale in the public market as follows:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Beginning on the date of this prospectus, the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares sold in
this offering will be immediately available for sale in the public market; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>Beginning 181&nbsp;days after the date of this prospectus,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
additional shares will become eligible for sale in the public market, of which&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares will be held by affiliates and subject to the volume and other restrictions
of Rule&nbsp;144, as
described below; and </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>The remainder of the shares will be eligible for sale in the public market
from time to time thereafter, subject in some cases to the volume and other restrictions of Rule&nbsp;144, as described below. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2><B> Rule&nbsp;144  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In general, under Rule&nbsp;144 as currently in effect, once we have been subject to public company reporting requirements for at least
90&nbsp;days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90&nbsp;days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of
sale, volume limitation or notice provisions of Rule&nbsp;144, subject to compliance with the public information requirements of Rule&nbsp;144. If such a person has beneficially owned the shares
proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of
the requirements of Rule&nbsp;144. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
general, under Rule&nbsp;144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon the expiration of the lock-up agreements
described below, within any three-month period
beginning 90&nbsp;days after the date of this prospectus, a number of shares that does not exceed the greater of:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>1% of the number of shares of common stock then outstanding, which will
equal approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares immediately after our initial public offering, or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a notice on Form&nbsp;144 with respect to such sale. </FONT></DD></DL>
</UL>
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<P style="font-family:arial;"><FONT SIZE=2>Sales
under Rule&nbsp;144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about us. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Rule&nbsp;701  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In general, under Rule&nbsp;701 as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with
a compensatory stock or option plan or other written agreement in a transaction before the effective date of our initial public offering that was completed in reliance on Rule&nbsp;701 and complied
with the requirements of Rule&nbsp;701 will, subject to the lock-up restrictions described below, be eligible to resell such shares 90&nbsp;days after the date of this prospectus in reliance on
Rule&nbsp;144, but without compliance with certain restrictions, including the holding period, contained in Rule&nbsp;144. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Lock-Up Agreements and Market Stand-Off Provisions  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>All of our directors and officers and all or substantially all of our security holders are subject to lock-up agreements or market standoff provisions
that generally prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options
to acquire shares of our common stock or any security or instrument related to our common stock, or entering into any swap, hedge or other arrangement that transfers any of the economic consequences
of ownership of our common stock, for a period of 180&nbsp;days following the date of this prospectus without the prior written consent of Jefferies&nbsp;LLC. See "Underwriting&#151;No
Sales of Similar Securities" for a more complete description of the lock-up agreements with the underwriters. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Registration Rights  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon the closing of our initial public offering, certain holders of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common
stock will be entitled to rights with respect
to the registration of the sale of these shares under the Securities Act. Registration of the sale of these shares under the Securities Act would result in these shares becoming fully tradable without
restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock&#151;Registration
Rights" for additional information. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Registration Statements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We intend to file&nbsp;a registration statement on Form&nbsp;S-8 under the Securities Act covering all of the shares of common stock subject to
options outstanding, as well as reserved for future issuance, under our stock plans. We expect to file this registration statement as soon as practicable after our initial public offering. However,
none of the shares registered on Form&nbsp;S-8 will be eligible for resale until the expiration of the lock-up agreements to which they are subject. </FONT></P>

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<BR></FONT><FONT SIZE=2><B>  MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS<BR>  FOR NON-U.S. HOLDERS OF COMMON STOCK    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock
acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes and does not deal with state, local or non-U.S. tax
consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address U.S. federal tax consequences other than income taxes. Special rules different
from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code such as financial institutions, insurance companies, tax-exempt organizations,
broker-dealers and traders in securities, U.S. expatriates, "controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal
income tax, persons that hold our common stock as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or integrated investment or other risk reduction strategy, partnerships
and other pass-through entities, and investors in such pass-through entities or entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their places of
organization or formation). Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed
below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with
such statements and conclusions. This discussion assumes that the Non-U.S. Holder holds our common stock as a "capital asset" within the meaning of Section&nbsp;1221 of the Code (generally, property
held for investment). </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following discussion is for general information only and is not tax advice. Persons considering the purchase of our common stock pursuant to this offering should consult their own tax advisors
concerning the U.S. federal income tax consequences of acquiring, owning and disposing of our common stock in light of their particular situations as well as any consequences arising under the laws of
any other taxing jurisdiction, including any state, local or non-U.S. tax consequences or any U.S. federal non-income tax consequences. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>For
the purposes of this discussion, a "Non-U.S. Holder" is, for U.S. federal income tax purposes, a beneficial owner of common stock that is not a U.S. Holder. A "U.S. Holder" means a beneficial
owner of our common stock that is for U.S. federal income tax purposes (a)&nbsp;an individual who is a citizen or resident of the United States, (b)&nbsp;a corporation or other entity treated as a
corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c)&nbsp;an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (d)&nbsp;a trust if it (1)&nbsp;is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (2)&nbsp;has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Also, partnerships, or other
entities that are treated as partnerships for U.S. federal income tax purposes (regardless of their place of organization or formation) and entities that are treated as disregarded entities for U.S.
federal income tax purposes (regardless of their place of organization or formation) are not addressed by this discussion and are, therefore, not considered to be Non-U.S. Holders for the purposes of
this discussion. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>135</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B> Distributions  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Subject to the discussion below, distributions, if any, made on our common stock to a Non-U.S. Holder of our common stock to the extent made out of
our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) generally will constitute dividends for U.S. tax purposes and will be subject to withholding
tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to
provide us with a properly executed IRS Form&nbsp;W-8BEN, or other appropriate form, certifying the Non-U.S. Holder's entitlement to benefits under that treaty. In the case of a Non-U.S. Holder that
is an entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to
the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder's behalf, the holder will be required to
provide appropriate documentation to such agent. The holder's agent will
then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an
income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a
refund with the IRS. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States
(and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States) if a properly executed IRS Form&nbsp;W-8ECI,
stating that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to such agent). In general, such effectively connected dividends
will be subject to U.S. federal income tax, on a net income basis at the regular graduated rates, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively
connected dividends may also be subject to an additional "branch profits tax," which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) on the corporate Non-U.S. Holder's effectively connected earnings and profits, subject to certain adjustments. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>To
the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce your adjusted basis in our common stock as a non-taxable return
of capital, but not below zero, and then any excess will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next
section. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Gain on Disposition of Our Common Stock  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal
income tax with respect to gain realized on a sale or other disposition of our common stock unless (a)&nbsp;the gain is effectively connected with a trade or business of such holder in the United
States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such holder maintains in the United States), (b)&nbsp;the Non-U.S. Holder is a
nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c)&nbsp;we are or have been a
"United States real property holding corporation" within the meaning of Code Section&nbsp;897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder's
holding period. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
you are a Non-U.S. Holder described in (a)&nbsp;above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, unless a specific
treaty exemption applies, and corporate Non-U.S. Holders described in (a)&nbsp;above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. If you are an individual Non-U.S. Holder described in (b)&nbsp;above, you will be required to pay a flat 30% tax on the gain </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>136</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>derived
from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S.
federal income tax returns with respect to such losses. With respect to (c)&nbsp;above, in general, we would be a United States real property holding corporation if interests in U.S. real estate
comprised (by fair market value) at least half of our assets. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation, however, there can be no
assurance that we will not become a U.S. real property holding corporation in the future. Even if we are treated as a U.S. real property holding corporation, gain realized by a Non-U.S. Holder on a
disposition of our common stock will not be subject to U.S. federal income tax so long as (1)&nbsp;the Non-U.S. Holder owned, directly, indirectly and constructively, no more than five percent of
our common stock at all times within the shorter of (i)&nbsp;the five-year period preceding the disposition or (ii)&nbsp;the holder's holding period and (2)&nbsp;our common stock is regularly
traded on an established securities market. There can be no assurance that our common stock will qualify as regularly traded on an established securities market. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Information Reporting Requirements and Backup Withholding  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock including the
amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to
tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Dividends
paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a
properly executed IRS Form&nbsp;W-8BEN or otherwise establishes an exemption and, provided that, the applicable withholding agent does not have actual knowledge or reason to know the holder is a
United States person. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under
current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or
through a U.S. office of any broker, U.S. or non-U.S., except that information reporting and such requirements may be avoided if the holder provides a properly executed IRS Form&nbsp;W-8BEN or
otherwise meets documentary evidence requirements for establishing Non-U.S. Holder status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding
requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker.
Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a
U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
backup withholding is applied to you, you should consult with your own tax advisor to determine if you are able to obtain a tax benefit or credit with respect to such backup withholding. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Additional Withholding Tax on Payments Made to Foreign Accounts  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Withholding taxes may be imposed under Sections&nbsp;1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax
Compliance Act, or "FATCA") on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends
on, or gross proceeds from the sale or other disposition of, our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless
(1)&nbsp;the foreign financial institution undertakes certain diligence and reporting obligations, (2)&nbsp;the non-financial foreign entity either certifies it does not have any "substantial
United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3)&nbsp;the foreign financial institution or non-financial
foreign entity otherwise qualifies for an exemption from </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>these
rules. The 30% federal withholding tax describe in this paragraph cannot be reduced under an income tax treaty with the United States or by providing a form&nbsp;W-BEN or similar
documentation. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1)&nbsp;above, it must enter into an agreement with the U.S. Department
of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in
the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Under
the applicable Treasury Regulations and IRS guidance, withholding under FATCA generally will apply to payments of dividends on our common stock made on or after July&nbsp;1, 2014 and to
payments of gross proceeds from the sale or other disposition of such stock on or after January&nbsp;1, 2017. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>THE
PRECEDING DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER
ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS SUCH AS ESTATE AND GIFT TAX. </FONT></P>

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<BR></FONT><FONT SIZE=2><B>  UNDERWRITING    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Subject to the terms and conditions set forth in the underwriting agreement,
dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2014, between us and Jefferies&nbsp;LLC and
Leerink Partners&nbsp;LLC, as the representatives of the underwriters named below and the joint book-running managers of this offering, we have agreed to sell to the underwriters, and each of the
underwriters has agreed, severally and not jointly, to purchase from us, the respective number of shares of common stock shown opposite its name below: </FONT></P>
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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Number of Shares </B></FONT></TH>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jefferies&nbsp;LLC</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Leerink Partners&nbsp;LLC</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Needham&nbsp;&amp; Company,&nbsp;LLC</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>FBR Capital Markets&nbsp;&amp;&nbsp;Co.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the
underwriters of officers' certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the
shares of common stock if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or
the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the common stock as permitted by applicable laws and regulations. However,
the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be
given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when
you sell will be favorable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part. In addition, the underwriters have advised us that they do not intend to confirm sales to any account over which they
exercise discretionary authority. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Commission and Expenses  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on
the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of
common stock. The
underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock to certain brokers and
dealers. After the offering,
the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>139</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this
offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:62%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TH COLSPAN=13 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TH>
<TH style="font-family:arial;">&nbsp;</TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=13 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Per Share </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Without<BR>
Option to<BR>
Purchase<BR>
Additional<BR>
Shares </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>With<BR>
Option to<BR>
Purchase<BR>
Additional<BR>
Shares </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Without<BR>
Option to<BR>
Purchase<BR>
Additional<BR>
Shares </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>With<BR>
Option to<BR>
Purchase<BR>
Additional<BR>
Shares </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Public offering price</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Underwriting discounts and commissions paid by us</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Proceeds to us, before expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=13 VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be
approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Healthios
Capital Markets,&nbsp;Inc., or Healthios, a FINRA member, is acting as our financial advisor in connection with the offering. We expect to pay Healthios, upon the successful completion of
this offering, a fee of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for its services. Healthios is not acting as an underwriter and will not sell or offer to sell any securities and will not identify,
solicit or engage directly
with potential investors. In addition, Healthios will not underwrite or purchase any of the offered securities or otherwise participate in any such undertaking. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Determination of Offering Price  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our common stock
will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market
valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to the offering or that an active
trading market for the common stock will develop and continue after the offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Listing  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We intend to apply to have our common stock approved for listing on the NASDAQ Global Market under the trading symbol "CORI." </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Option to Purchase Additional Shares  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have granted to the underwriters an option, exercisable for 30&nbsp;days from the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares from us at the public offering
price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the
underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional shares proportionate to that underwriter's initial </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>140</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>purchase
commitment as indicated in the table above. This option may be exercised only if the underwriters sell more shares than the total number set forth on the cover page of this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> No Sales of Similar Securities  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We, our officers, directors and holders of all or substantially all our outstanding capital stock have agreed, subject to specified exceptions, not to
directly or indirectly:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>sell, offer, contract or grant any option to sell (including any short
sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule&nbsp;16a-l(h) under the Securities Exchange Act of 1934, as amended, or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock currently or hereafter owned either of record or beneficially,
or</FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>publicly announce an intention to do any of the foregoing for a period of
180&nbsp;days after the date of this prospectus without the prior written consent of Jefferies&nbsp;LLC. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>This
restriction terminates after the close of trading of the common stock on and including the 180<SUP>th</SUP>&nbsp;day after the date of this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Jefferies&nbsp;LLC
may, in its sole discretion and at any time or from time to time before the termination of the 180-day period release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the underwriters and any of our shareholders who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration
of the lock-up period. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Stabilization  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The underwriters have advised us that they, pursuant to Regulation&nbsp;M under the Securities Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These
activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales
positions may involve either "covered" short sales or "naked" short sales. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>"Covered"
short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares of our common stock in this offering. The underwriters may close out any
covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of
shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they
may purchase shares through the option to purchase additional shares. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>"Naked"
short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market
after pricing that could adversely affect investors who purchase in this offering. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A
stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to
other purchase transactions, the underwriter's purchases
to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>141</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2>stock.
As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the
selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering
transaction and therefore have not been effectively placed by such syndicate member. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Neither
we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common
stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
underwriters may also engage in passive market making transactions in our common stock on the NASDAQ Global Market in accordance with Rule&nbsp;103 of Regulation&nbsp;M during a period before
the commencement of offers or sales of shares of our common stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in
excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, that bid must then be lowered when specified purchase limits
are exceeded. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Electronic Distribution  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A prospectus in electronic format may be made available by e-mail or through online services maintained by one or more of the underwriters or their
affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares
of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the
prospectus in electronic format, the information on the underwriters' web sites and any information contained in any other web site maintained by any of the underwriters is not part of this
prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Other Activities and Relationships  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The underwriter and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities
trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriter and
certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for
which they received or will receive customary fees and expenses. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
the ordinary course of their various business activities, the underwriter and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may
involve securities and/or instruments issued by us and our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit
exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either
the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short
positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment
recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that
they acquire, long and/or short positions in such securities and instruments. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>142</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B> Disclaimers About Non-U.S. Jurisdictions  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> European Economic Area  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), an
offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State, except that the shares may be offered to the
public in that Relevant Member State at any time under the following exemptions under the Prospectus Directive, if it has been implemented in that Relevant Member State: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>to
legal entities which are "qualified investors" as defined in the Prospectus Directive;
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>to
fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons
(other than "qualified investors" as defined in the Prospectus Directive) as permitted under the Prospectus Directive; or
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>in
any other circumstances falling within Article&nbsp;3(2) of the Prospectus Directive, </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>provided
that no such offer of shares shall result in a requirement for, the publication by the Company or either of the Joint Sponsors of a Prospectus pursuant to Article&nbsp;3 of the Prospectus
Directive, or supplementing a Prospectus pursuant to Article&nbsp;16 of the Prospectus Directive, and each person who initially acquires shares or to whom any offer is made will be deemed to have
represented, warranted to and agreed with the Joint Sponsors and the Company that it is a "qualified investor" within the meaning of the law in that Relevant Member State implementing
Article&nbsp;2(1)(e) of the Prospectus Directive. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For
the purposes of this provision, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the
extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> United Kingdom  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning
of Article&nbsp;2(1)(e) of the Prospectus Directive that are also (i)&nbsp;investment professionals falling within Article&nbsp;19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005, as amended (the "Order") and/or (ii)&nbsp;high net worth entities falling within Article&nbsp;49(2)(a) to (d)&nbsp;of the Order and other persons to whom it may lawfully
be communicated (each such person being referred to as a "relevant person"). </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>This
prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom.
Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>143</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="eo47201_legal_matters"> </A>
<A NAME="toc_eo47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  LEGAL MATTERS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The validity of the shares of common stock offered hereby will be passed upon for us by Fenwick&nbsp;&amp; West&nbsp;LLP, Mountain View, California.
Latham&nbsp;&amp; Watkins&nbsp;LLP, Costa Mesa, California is acting as counsel to the underwriters. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="eo47201_experts"> </A>
<A NAME="toc_eo47201_2"> </A>
<BR></FONT><FONT SIZE=2><B>  EXPERTS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The financial statements as of September&nbsp;30, 2012 and 2013, and for the years then ended, included in this prospectus, have been audited by
Deloitte&nbsp;&amp; Touche&nbsp;LLP, an independent registered public accounting firm, as stated in their report appearing herein, which expresses an unqualified opinion on the financial statements
and includes an explanatory paragraph referring to substantial doubt about our ability to continue as a going concern. Such financial statements have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="eo47201_where_you_can_find_additional_information"> </A>
<A NAME="toc_eo47201_3"> </A>
<BR></FONT><FONT SIZE=2><B>  WHERE YOU CAN FIND ADDITIONAL INFORMATION    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We have filed with the SEC a registration statement on Form&nbsp;S-1 under the Securities Act with respect to the shares of common stock offered
hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For
further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding
the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such
contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon closing of our initial public offering, we will be required
to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected
without charge at the public reference room maintained by the SEC, located at 100&nbsp;F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained
from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>144</FONT></P>

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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="fa47201_corium_international,_inc."> </A>
<BR></FONT><FONT SIZE=2><B>  CORIUM INTERNATIONAL,&nbsp;INC.    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>

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<A NAME="ITFS"></A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> INDEX TO FINANCIAL STATEMENTS<BR>
As of and for the years ended September&nbsp;30, 2012 and 2013  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="FA47201_TOC"></A> </FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Page </B></FONT></TH>
</TR>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#page_fb47201_1_2"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Report of Independent Registered Public Accounting Firm</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#page_fb47201_1_2"><FONT SIZE=2>F-2</FONT></A></TD>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fc47201_corium_international,_inc._bal__cor03256"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance Sheets</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fc47201_corium_international,_inc._bal__cor03256"><FONT SIZE=2>F-3</FONT></A></TD>
</TR>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fe47201_corium_international,_inc._sta__cor04686"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Statements of Operations and Comprehensive Loss</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fe47201_corium_international,_inc._sta__cor04686"><FONT SIZE=2>F-4</FONT></A></TD>
</TR>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fg47201_corium_international,_inc._sta__cor06797"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Statements of Changes in Convertible Preferred Stock, Redeemable Common Stock
and Stockholders' Deficit</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fg47201_corium_international,_inc._sta__cor06797"><FONT SIZE=2>F-5</FONT></A></TD>
</TR>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#page_fi47201_1_6"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Statements of Cash Flows</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#page_fi47201_1_6"><FONT SIZE=2>F-6</FONT></A></TD>
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<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#page_fk47201_1_7"><p style="font-family:arial;margin-left:13pt;text-indent:-13pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes to Financial Statements</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#page_fk47201_1_7"><FONT SIZE=2>F-7</FONT></A></TD>
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<P style="font-family:arial;"><FONT SIZE=2><B> REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>To the Board of Directors and Stockholders of<BR>
Corium International,&nbsp;Inc.: </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
have audited the accompanying balance sheets of Corium International,&nbsp;Inc. (the "Company") as of September&nbsp;30, 2013 and 2012, and the related statements of operations and
comprehensive loss, changes in convertible preferred stock, redeemable common stock and stockholders' deficit, and cash flows for each of the two years in the period ended September&nbsp;30, 2013.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
our opinion, such financial statements present fairly, in all material respects, the financial position of Corium International,&nbsp;Inc. as of September&nbsp;30, 2013 and 2012, and the
results of its operations and its cash flows for each of the two years in the period ended September&nbsp;30, 2013, in conformity with accounting principles generally accepted in the United States
of America. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note&nbsp;1 to the financial statements, the Company's recurring
losses and their need to obtain additional capital raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in
Note&nbsp;1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><U>/s/
Deloitte&nbsp;&amp; Touche&nbsp;LLP</U><BR>
Grand Rapids, Michigan<BR>
March&nbsp;3, 2014 </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-2</FONT></P>

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<A NAME="toc_fc47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Balance Sheets<BR>  (In thousands, except share and per share data)    <BR>    </B></FONT></P>
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<TH style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TH>
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<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma<BR>
Stockholders'<BR>
Equity<BR>
as of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
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<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Current assets:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>12,245</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,581</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,800</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,129</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Unbilled accounts receivable</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,167</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,495</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Inventories, net</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,369</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,508</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Prepaid expenses and other current assets</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>901</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,038</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:29pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total current assets</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,482</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>23,751</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,024</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>12,622</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Debt financing costs, net</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,119</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>902</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Intangible assets, net</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,577</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,647</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes receivable&nbsp;&#151; related parties</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>100</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>TOTAL ASSETS</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,202</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>44,022</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>LIABILITIES, CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT</B></FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts payable</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,298</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,748</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accrued expenses and other current liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,441</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,374</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,572</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,873</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>557</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>457</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capital lease obligations, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>599</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,029</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>560</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Recall liability, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>500</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,004</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred contract revenues, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>867</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,112</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:29pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11,380</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>15,157</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term interest payable</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,940</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11,590</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>29,201</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,956</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,399</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capital lease obligations, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>430</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,652</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Recall liability, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,500</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,828</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred contract revenues, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,612</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,688</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:37pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>83,063</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>102,637</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro&nbsp;forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Redeemable common stock, par value of $.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro
forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,224</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,224</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:9pt;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stockholders' deficit:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock, par value of $0.001 per share, 115,000,000 shares authorized; 18,735,378 and 18,999,892 shares issued and outstanding as of
September&nbsp;30, 2012 and 2013, actual; 58,549,044 shares issued and outstanding as of September&nbsp;30, 2013, pro forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>19</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>19</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(27,819</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(26,696</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(78,546</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(92,423</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total stockholders' deficit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(106,346</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(119,100</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,202</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>44,022</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>See accompanying notes to financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-3</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fe47201_corium_international,_inc._sta__cor04686"> </A>
<A NAME="toc_fe47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Statements of Operations and Comprehensive Loss<BR>  (In thousands, except share and per share data)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>35,716</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>38,704</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,838</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,750</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>306</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>816</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>42,860</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>50,270</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Costs and operating expenses:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>24,360</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>24,828</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,244</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11,856</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,966</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>5,496</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,645</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,525</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>512</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>541</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(57</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(177</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total costs and operating expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>43,670</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>49,069</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(810</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,201</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(5,247</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(7,705</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(14</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(7,367</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other income</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>582</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Loss before income taxes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(5,450</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,876</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income tax benefit (expense)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.24</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.62</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,227,342</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,452,114</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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&nbsp;&nbsp;&nbsp;
</font></p><p align=center style="font-family:arial;"> <FONT SIZE=2>
See accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-4</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fg47201_corium_international,_inc._sta__cor06797"> </A>
<A NAME="toc_fg47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Statements of Changes in Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit<BR>  (In thousands, except share and per share
data)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="36pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="32pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="32pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="40pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="54pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Convertible Preferred<BR>
Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Redeemable<BR>
Common Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B><BR>
<BR>


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 </B></FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B><BR>
<BR>


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 </B></FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Common Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Additional<BR>
Paid-in<BR>
Capital </B></FONT></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Accumulated<BR>
Deficit </B></FONT></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total<BR>
Stockholders'<BR>
Deficit </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TH ALIGN="CENTER" style="font-family:arial;">&nbsp;<BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
<TH ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><B>


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&nbsp;</B><BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
<TH ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><B>


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</B><BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:6pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Balance&nbsp;&#151; October&nbsp;1, 2011</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,670,172</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,367</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">18,111,213</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">18</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(28,006</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(73,103</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(101,091</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Repayment of founder note with common stock</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(155,920</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(143</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>)</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


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 Issuance of common stock warrants in connection with debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">110</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">110</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Issuance of common stock upon exercise of stock options</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">624,165</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


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 Stock-based compensation expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">66</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">66</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TD style="font-family:arial;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:6pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Balance&nbsp;&#151; September&nbsp;30, 2012</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">



<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,514,252</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">18,735,378</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(27,819</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(78,546</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(106,346</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Issuance of common stock warrants in connection with debt and capital lease financing</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
38</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
38</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Issuance of common stock upon exercise of stock options</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">264,514</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Stock-based compensation expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">330</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">330</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


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 Modification of warrants issued in connection with debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">742</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">742</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TD style="font-family:arial;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


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&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:6pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">



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 Balance&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,514,252</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">18,999,892</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(26,696</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(92,423</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(119,100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TD style="font-family:arial;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


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&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


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&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
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&nbsp;&nbsp;&nbsp;
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See accompanying notes to financial statements.</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-5</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fi47201_corium_international,_inc._sta__cor02489"> </A>
<A NAME="toc_fi47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Statements of Cash Flows<BR>  (In thousands)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="55pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="55pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM OPERATING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Depreciation and amortization of property and equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,973</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,892</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(57</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(177</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Gain on settlement of recall liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(582</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(21</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">14</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of subordinated debt embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,367</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">512</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">541</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Noncash amortized debt issue costs on long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">706</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">329</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Noncash amortized debt discount</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">246</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">196</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Patent costs written off</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">101</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">82</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Stock compensation expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">66</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">330</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Noncash reductions in product recall settlement</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(3,041</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Changes in operating assets and liabilities:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts receivable, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">889</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(329</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Unbilled accounts receivable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(18</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">672</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Inventories</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">82</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(139</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Prepaid expenses and other current assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(563</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(137</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,289</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(878</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accrued expenses and other liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(176</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,329</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,465</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">321</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(168</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Long-term interest payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,190</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,650</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash provided (used) by operating activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">40</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(982</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM INVESTING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Purchases of property and equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,859</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,163</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from sale of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">15</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">17</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Increase in notes receivable&nbsp;&#151; related parties</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(49</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payments for patents and licensing rights</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(467</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(693</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash used in investing activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,360</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(7,939</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM FINANCING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from issuance of long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,477</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,230</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from issuance of capital leases</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">84</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,266</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payments on convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(10,000</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payment of transaction costs on issuance of long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,671</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(112</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Principal payments on long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(8,792</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(812</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Principal payments on capital lease obligations</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(548</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(629</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Borrowings on bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">24,706</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">5,827</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payments on bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(26,276</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(3,526</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from exercise of stock options</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash provided by financing activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,992</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">10,257</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">NET INCREASE IN CASH AND CASH EQUIVALENTS</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,672</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,336</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH AND CASH EQUIVALENTS&nbsp;&#151; Beginning of period</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">573</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,245</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH AND CASH EQUIVALENTS&nbsp;&#151; End of period</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,245</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,581</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cash paid for interest</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">766</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,856</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cash paid for income taxes</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">NON-CASH INVESTING AND FINANCING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Issuance of common stock warrants in connection with debt financing and equipment lease financing</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">110</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">38</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Property and equipment purchases included in accounts payable and accrued liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">806</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,134</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Issuance of payment-in-kind notes in lieu of cash interest payments</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">161</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,235</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Reduction in notes receivable through redemption of common stock</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">143</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Unpaid deferred offering costs</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">20</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-6</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fk47201_corium_international,_inc._not__cor03976"> </A>
<A NAME="toc_fk47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.    <BR>    <BR>    Notes to the Financial Statements    <BR>    <BR>    As of and for the years ended September&nbsp;30, 2012 and 2013    <BR>
</B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Organization  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Corium International,&nbsp;Inc., a Delaware corporation (the "Company"), is a commercial stage biopharmaceutical company focused on the development,
manufacture and commercialization of specialty pharmaceutical products that leverage its broad experience in transdermal and transmucosal delivery systems. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
the normal course of business, the Company enters into collaboration agreements with partners to develop and manufacture products based on the Company's drug delivery technologies. Revenues consist
of net sales of products manufactured, royalties and profit-sharing payments based on sales of such products by partners, and fees for research and development activities under collaboration
agreements with strategic partners. The Company is also engaged in the research and development of its own proprietary transdermal drug delivery products using its proprietary technologies. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company's fiscal year ends on September&nbsp;30. References to "fiscal" refer to the years ended September&nbsp;30. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Basis of Presentation  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and negative cash flows from
operations. The Company has recorded net losses of $5.4&nbsp;million and $13.9&nbsp;million for fiscal 2012 and 2013, respectively. At September&nbsp;30, 2013, the Company had an accumulated
deficit of $92.4&nbsp;million and cash and cash equivalents of $13.6&nbsp;million. The Company's management believes that there is significant uncertainty about its ability to operate as a going
concern. The Company's ability to operate as a going concern is dependent on the Company's ability to raise additional capital which may not be available to the Company on acceptable terms, or at all.
The Company is considering various plans to raise additional financing. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company's
business, results of operations, future cash flows and financial condition. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Use of Estimates  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Estimates and assumptions are required to be used by management in the preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of operating revenues and operating expenses during the reporting period. Those estimates and assumptions affect revenue recognition and deferred revenues, impairment of
long-lived assets, determination of fair value of stock-based awards and other debt and equity related instruments, and accounting for income taxes. As future events and their effects cannot be
determined with precision, actual results could differ from those estimates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Concentration of Credit Risk  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents primarily with domestic financial institutions that are federally insured within statutory limits. The Company provides credit, in the
normal course of business, to its partners and performs credit evaluations of such partners. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-7</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Four
partners accounted for 94% and 99% of the Company's revenues for fiscal 2012 and 2013. These same partners accounted for 97% and 100% of accounts receivable as of September&nbsp;30, 2012 and
2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Revenue Recognition  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company generates revenues from agreements for the development and commercialization of its products. The terms of the agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales and royalties and profit sharing on product sales derived from
partner agreements. The Company recognizes revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable;
and collectability is reasonably assured. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Revenue
related to multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This
determination is generally based on whether any deliverable has stand-alone value to the partner. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement
consideration to identified units of accounting. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. Typically, the Company has not granted licenses to
partners at the beginning of its arrangements and thus there are no delivered items separate from the research and development services provided. As such, upfront payments are recorded as deferred
revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance that is consistent with the terms of the research and
development obligations contained in the agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Amounts
related to research and development funding are generally recognized as the related services or activities are performed, in accordance with the contract terms. To the extent that agreements
specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified rates in
the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally, all of the
agreements provide for reimbursement of third-party expenses, and such reimbursable expenses are billed as revenues as incurred. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
arrangements may include contractual milestones, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events contained in
the Company's arrangements coincide with the progression of the Company's product candidates from research and development, to regulatory approval and through to commercialization. The process of
successfully developing a new product, having it approved from a regulatory perspective and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn
from its partners involve a significant degree of risk to achieve. Research and development milestones in the Company's strategic alliances may include the following types of events: completion of
pre-clinical research and development work, completion of certain development events and initiation of clinical trials. Regulatory milestones may include the following types of events: filing of
regulatory applications with the Food and Drug Administration and approval of the regulatory applications by the Food and Drug Administration. Commercialization </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-8</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>milestones
may include product launch. The Company recognizes milestone payments in its entirety in the period in which the milestone is achieved. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon
commercialization, revenues are generated from product sales, royalties and profit sharing. Product sales are generally recognized as products are shipped and title and risk of loss pass to the
partner. Royalties and profit sharing are generally recognized when the Company's partners sell the product to their customers and are based on a percentage of the Company's partners' gross sales or
net profits for products subject to our agreements. Royalties and profit sharing totaled $6.4&nbsp;million and $7.8&nbsp;million for fiscal 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Other
revenues consists of income derived from the Company's arrangements with its partners, whereby a portion of the revenues received under these agreements relates to rental income from embedded
leases associated with these relationships, as well as revenues associated with licenses granted to a third party for intellectual property related to thin film dressings. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Research and Development  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Research and development expenses are primarily comprised of salaries and benefits associated with research and development personnel, overhead and
facility costs, preclinical and non-clinical development costs, clinical trial, and related clinical manufacturing costs, contract services, and other outside costs. Research and development costs,
including costs to be subsequently reimbursed under development contracts, are charged to expense when incurred. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Advertising Costs  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Advertising costs are expensed when incurred and are included in general and administrative expenses in the accompanying statements of operations. The
Company's advertising expenses were immaterial for fiscal 2012 and 2013 </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Stock-Based Compensation  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The Company determines the fair value of such awards using the Black-Scholes option-pricing model (the "Black-Scholes model"), which incorporates
certain assumptions as follows: </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Expected
Term&nbsp;&#151; The expected term represents the period that the stock-based awards are expected to be outstanding. As the Company's historical share option exercise experience did
not provide a reasonable basis upon which to estimate expected term because of a lack of sufficient data points, the Company estimated the expected term by using the simplified method. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Risk-Free
Interest Rate&nbsp;&#151; The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with a term consistent with the expected term. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Expected
Dividend&nbsp;&#151; The expected dividend is based on management's current expectation about the Company's anticipated dividend policy. The Company does not anticipate declaring
dividends in the foreseeable future. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-9</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Expected
Volatility&nbsp;&#151; Because the Company is not publicly traded, the volatility was based on the average of selected public companies in the same or similar business. When
selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company recognizes compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee
termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Income Taxes  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company accounts for income taxes based on the liability method. Under the liability method, deferred tax assets and deferred tax liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and deferred tax liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and deferred tax liabilities of a change in tax rates is recognized in operations in the period that includes the
enactment date. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Comprehensive Income (Loss)  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During fiscal 2012 and 2013, the Company did not recognize any other comprehensive income (loss) and, therefore, the net income (loss) and
comprehensive income (loss) was the same for all periods presented. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Net Loss and Pro Forma Net Loss per Share Attributable to Common Stockholders  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required
for companies with participating securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by
the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential
dilutive common stock equivalents outstanding for the period. For purposes of the diluted calculation, convertible preferred stock, options to purchase common stock and common stock warrants are
considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. In contemplation of
an initial public offering, the Company has presented the unaudited pro forma basic and diluted net loss per share attributable to common stockholders, which has been computed to give effect to the
conversion of the convertible preferred stock into shares of common stock and the conversion of preferred stock warrants to common stock warrants as of the beginning of the respective period. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Cash and Cash Equivalents  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
The Company generally invests funds that are in excess of current needs in high-credit-quality instruments, such as obligations of U.S. government agencies, high-credit-rating commercial paper, and
money market funds. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-10</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Accounts Receivable and Allowance for Doubtful Accounts  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Accounts receivable are stated at invoiced amounts. An allowance for doubtful accounts is established as needed based on a specific assessment of all
invoices that remain unpaid following normal partner payment periods. All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that the
determination is made. The allowance for doubtful accounts was $0 as of September&nbsp;30, 2012 and 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Inventories  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Inventories are stated at the lower of cost, on a first-in, first-out basis, or market. The Company records an allowance for excess and obsolete
inventory based on anticipated obsolescence, usage, and historical write-offs. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Deferred Offering Costs  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Deferred offering costs, which consist of direct incremental legal, consulting, and accounting fees relating to the IPO, are capitalized. The deferred
offering costs will be offset against IPO proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed. As of September&nbsp;30,
2013, the Company capitalized $20,000 of deferred offering costs in prepaid expenses and other current assets on the balance sheet. No amounts were deferred as of September&nbsp;30, 2012. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Property and Equipment  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Equipment is depreciated over its useful life, ranging
from 3 to 8&nbsp;years using the straight-line method. Leasehold improvements are depreciated or amortized over the shorter of the lease term or their useful lives ranging from 3 to 15&nbsp;years
using the straight-line method. Expenditures for maintenance and repairs are charged to expense as incurred. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Capital Leases  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company leases several pieces of equipment under capital lease arrangements. During the year ended September&nbsp;30, 2011, the Company
completed two transactions, whereby existing manufacturing equipment was sold to and leased back from the lessor. Under these transactions, a gain on the sale was deferred and is being amortized over
the life of the lease. As of September&nbsp;30, 2012 and 2013, there was $0.3&nbsp;million and $0.1&nbsp;million of unrecognized gain on sale of leased assets. Equipment leased under capital
leases is amortized over the life of the lease term using the straight-line method. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Intangible Assets  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Intangible assets consist primarily of the cost of acquired patents and legal costs associated with patent development and contract acquisition costs.
These costs are capitalized and amortized over the lesser of the estimated economic lives of the patents or the underlying contracts and the remaining legal lives of the patents on a straight-line
basis, which approximates the pattern of consumption over the estimated useful lives of the assets, once a patent is granted. The Company periodically reevaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated lives of these assets. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-11</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Impairment of Long-Lived Assets  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition.
Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. No impairment was recorded for fiscal 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Fair Value of Financial Instruments  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of
these assets or liabilities are as follows: </FONT></P>

<UL>

<P style="font-family:arial;"><FONT SIZE=2>Level&nbsp;I&nbsp;&#151;
Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Level&nbsp;II&nbsp;&#151;
Inputs (other than quoted prices included in Level&nbsp;I) that are either directly or indirectly observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the instrument's anticipated life. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Level&nbsp;III&nbsp;&#151;
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect
management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and
the risk inherent in the inputs to the model. </FONT></P>

</UL>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Recent Account Pronouncements  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In May 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No.&nbsp;2011-04, Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S.&nbsp;GAAP and International Financial Reporting Standards ("IFRS"). This pronouncement was issued to provide a consistent definition
of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S.&nbsp;GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and
enhances the disclosure requirements particularly for Level&nbsp;III fair value measurements. This pronouncement is effective for reporting periods beginning on or after December&nbsp;15, 2011,
with early adoption prohibited. The adoption of this standard on October&nbsp;1, 2012 did not have an impact on the Company's financial statements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
June 2011, the FASB issued ASU No.&nbsp;2011-05, Presentation of Comprehensive Income, which requires an entity to present total comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. The Company early adopted this guidance on October&nbsp;1, 2012, retrospectively. During fiscal
2012 and 2013, the Company did </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-12</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>not
have any other comprehensive income and, therefore, the net loss and comprehensive loss was the same for all periods presented. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
April 2011, the FASB issued new accounting guidance relating to the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. The guidance addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor
(i.e.,&nbsp;seller) has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance will be effective, on a prospective basis, for new transactions or
modifications to existing transactions on October&nbsp;1, 2012. The adoption of this new guidance did not have an impact on the Company's financial statements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial
reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive
income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is
required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December&nbsp;15, 2012. This new guidance
impacts how the Company reports comprehensive income only, and will have no effect on the Company's results of operations, financial position or liquidity upon its required adoption on
October&nbsp;1, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Adjustment to Prior Year Financial Statements  </I></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company identified an error related to its accounting for accrued vacation which relates to periods prior to fiscal 2012. Management believes the
errors are not material to any prior period financial statements. The corrections of the errors had the effect of increasing accrued expenses $0.4&nbsp;million at September&nbsp;30, 2012,
increasing operating expenses by $35,000 for the year ended September&nbsp;30, 2012 and reducing stockholders deficit by $0.4&nbsp;million at September&nbsp;30, 2011. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 2. Fair Value Measurements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
Except as noted below, the carrying values of the Company's financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the
short period of time to maturity or repayment. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company's financial instruments that are measured at fair value on a recurring basis as of September&nbsp;30, 2012 and 2013, by level within the fair value hierarchy, are as follows (in
thousands): </FONT></P>
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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="34pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="41pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="31pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;I </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;II </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;III </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total financial liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-13</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=160,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=209922,FOLIO='F-13',FILE='DISK131:[13ZDG1.13ZDG47201]FK47201A.;17',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fk47201_1_14"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 2. Fair Value Measurements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;<BR></FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="34pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;I </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;II </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;III </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>560</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>560</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total financial liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 <P style="font-family:arial;"><FONT SIZE=2>The Company's Level&nbsp;III liabilities consist of a preferred stock warrant liability (see Note&nbsp;9) and subordinated note embedded derivative liability
(Note&nbsp;6). The following table sets forth a summary of the changes in the fair value of the Company's Level&nbsp;III financial liabilities, which are measured on a recurring basis (in
thousands): </FONT></P>
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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Beginning balance</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>389</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Fair value of additional warrants issued</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>178</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of preferred stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>14</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ending balance</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>546</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The following financial instruments have carrying values which differ from their fair value as estimated by the Company based on market quotes for instruments
with similar terms and remaining maturities (Level&nbsp;III valuation technique) (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Carrying<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Difference </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29,758</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29,758</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,705</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,705</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8,032</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(4,968</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>52,758</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>50,495</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,263</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Carrying<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Difference </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,399</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>14,316</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,917</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,508</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(3,492</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>59,812</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>61,237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,425</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-14</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=161,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=725734,FOLIO='F-14',FILE='DISK131:[13ZDG1.13ZDG47201]FK47201A.;17',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fk47201_1_15"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 3. Balance Sheet Components  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Inventories  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Inventories consist of the following (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Raw materials</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,410</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Work in process</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,431</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Finished goods</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>783</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>667</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total inventories, cost</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,434</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,623</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less inventory reserves</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(65</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(115</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total inventories, net</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,369</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,508</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B><I> Property and equipment  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Property and equipment consist of the following (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="53pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="53pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Machinery and equipment</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,928</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,145</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Manufacturing equipment acquired under capital leases</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,825</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,825</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Transportation equipment</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>48</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>931</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>928</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Computer equipment and software</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>389</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>401</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,080</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,145</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Land</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Construction in progress</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,809</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8,843</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total property and equipment, gross</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>19,220</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>26,522</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accumulated depreciation and amortization</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(12,196</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(13,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total property and equipment, net</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,024</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,622</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The Company recorded depreciation and amortization of property and equipment of $2.0&nbsp;million and $1.9&nbsp;million during fiscal 2012 and 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-15</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued)  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 4. Intangible Assets  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
Intangible assets and related accumulated amortization consist of the following (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Patents and trademarks</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,075</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,686</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract acquisition costs</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,682</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,677</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total carrying value</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,757</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,363</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accumulated amortization:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Patents and trademarks</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(2,761</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(3,237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract acquisition costs</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,419</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,479</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total accumulated amortization</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(4,180</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(4,716</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total intangible assets, net</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,577</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,647</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The Company amortizes its intangible assets related to issued patents over the estimated useful lives of the patents, ranging from 7 to 20&nbsp;years.
Amortization of issued patents, excluding impairments or abandonments, was $0.4&nbsp;million and $0.5&nbsp;million in fiscal 2012 and 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
estimated remaining annual amortization expenses for issued patents and trademarks as of September&nbsp;30, 2013 are as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:95pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ending September&nbsp;30:

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amounts </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>456</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2015</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>456</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2016</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>456</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>456</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>456</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Thereafter</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,642</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,922</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>Patents in process included in intangible assets were $2.3&nbsp;million and $2.5&nbsp;million during fiscal 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company amortizes its intangible assets related to contract acquisition costs over their estimated useful lives, ranging from 3 to 14&nbsp;years. Amortization of contract acquisition costs was
$66,000 and $65,000 in fiscal 2012 and 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-16</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=163,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=400349,FOLIO='F-16',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_17"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 4. Intangible Assets (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
estimated remaining annual amortization expense for contract acquisition cost as of September&nbsp;30, 2013 are as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:95pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ending September&nbsp;30:

<!-- COMMAND=ADD_SCROPPEDRULE,95pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amounts </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2015</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2016</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>29</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Thereafter</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>53</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>198</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 5. Notes Receivable&nbsp;&#151; Related Parties  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
Notes receivable consists of an unsecured note that is payable by one of the executive officers of the Company. The note calls for payment of half the principal and accrued interest on
December&nbsp;28, 2015 and the remaining principal and interest on June&nbsp;28, 2018. The note accrues interest at 1% below the prime rate, adjusted as of January&nbsp;1 each year (an effective
rate of 2.25% at September&nbsp;30, 2013). The Company recognized $1,000 of related party interest income from this note in fiscal 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During
the year ended September&nbsp;30, 2012, an unsecured note payable by one of the Company's founders, who is also a stockholder and director of the Company, and all accrued interest thereon was
settled in connection with an agreement with the founder pursuant to which the Company was permitted to repurchase 155,920 shares of common stock from the founder using the $0.1&nbsp;million
indebtedness of the founder's note and accrued interest as purchase consideration. This repurchase involving this founder, was approved in 2009 by the Company's board of directors as being in the
financial interests of the Company, and was conducted under the terms of an agreement entered into between the Company and the founder in 2007, which is more fully described in Note&nbsp;12. Prior
to the repurchase, the Company had recognized $3,000 of related-party interest income from the note receivable from this founder in fiscal 2012. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-17</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<A NAME="page_fm47201_1_18"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 6. Debt  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company's outstanding debt as of September&nbsp;30, 2012 and 2013 consist of a bank line of credit, amounts outstanding under a term loan agreement classified as long-term debt, convertible
notes and a subordinated note as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bank line of credit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,572</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,873</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>29,758</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,399</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>54,330</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>63,685</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less current portion, consisting of bank line of credit and long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,129</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,330</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>52,201</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>59,355</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> Bank Line of Credit  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A previous line of credit with the Company's commercial bank expired on August&nbsp;29, 2012, and was replaced with a new line of credit. The new
line of credit was completed with the Company's same commercial bank on August&nbsp;31, 2012. The line of credit provides for borrowings up to $6.0&nbsp;million, expires on August&nbsp;31, 2014,
and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all other assets of the Company. Advances under the line of credit
are based on 80% of eligible accounts receivable. The line of credit bears interest at 0.25%, plus the bank's prime rate (an effective rate of 4.25% as of September&nbsp;30, 2012 and 2013), and
provides for a minimum monthly interest charge of $5,000. In addition, the line of credit required a $60,000 facility fee which was paid in August 2013. The line of credit contains a minimum monthly
liquidity covenant of $2&nbsp;million of net cash on deposit with the commercial bank. The Company was in compliance with such covenant as of September&nbsp;30, 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-18</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=165,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=425515,FOLIO='F-18',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_19"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 6. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Long-term Debt  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Long-term debt was as follows (in thousands):<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Term loan agreement expiring June&nbsp;30, 2017. See terms of the agreement below.</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less discount of $106 and $103 as of September&nbsp;30, 2012 and 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>29,055</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,293</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $3 at an interest rate of 7% and is due
April 2015</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>150</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>124</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $6 at an interest rate of 7% and is due
November 2024</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>575</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $93 at an interest rate of 2.492% and
is due March 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>553</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $71 at an interest rate of 2.192% and
is due March 2014</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>421</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>29,758</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>557</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>457</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>29,201</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,956</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>On July&nbsp;13, 2012, the Company completed a $35.0&nbsp;million term loan agreement with a financial investment fund. In August 2012 and December 2012, the
Company drew down $29.0&nbsp;million and $6.0&nbsp;million under this agreement. The agreement requires interest to be paid quarterly at a simple annual rate of 15%, and that all outstanding
principal be repaid in four equal quarterly payments beginning September&nbsp;30, 2016. The facility also contains a provision whereby the Company can choose to defer cash payment of 3.5% on the
original outstanding principal from the first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes under the agreement. As of
September&nbsp;30, 2012 and 2013, the Company has converted $0.2&nbsp;million and $1.2&nbsp;million of interest into additional notes (payment-in-kind notes). Amounts outstanding under the term
loan agreement are collateralized by all of the Company's assets and the agreement contains a 1% fee on all draws and provides for a prepayment penalty on the outstanding principal if the Company
chooses to repay principal prior to maturity, or upon other specified events, including a change of control. The term loan agreement provides for financial covenants for minimum revenues and minimum
liquidity, of which the Company was in compliance as of September&nbsp;30, 2012 and 2013. A portion of the proceeds of the agreement were used to repay $10.0&nbsp;million of the Convertible Notes
and to repay the $6.5&nbsp;million November 2011 notes payable to two of the Company's other lenders (described below). </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>On
November&nbsp;7, 2011, the Company issued a $6.5&nbsp;million note payable to its commercial bank and another financial institution. The note called for monthly interest payments (9.04% annual
interest rate) through March&nbsp;31, 2012. The outstanding principal was to be repaid in 30 equal monthly installments, </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-19</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=166,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=48423,FOLIO='F-19',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_20"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 6. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>plus
interest. The note was collateralized by all of the Company's assets. The note contained a 1% up-front loan fee, a 6% fee at maturity, and a 5% prepayment fee. The proceeds of the November 2011
note were used to repay the then-existing notes payable to the bank. The November 2011 note was paid off in August 2012 with the proceeds of the term loan agreement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Convertible Notes  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2008 and 2009, the Company issued convertible bridge notes (the "Convertible Notes") and warrant purchase agreements to several of the existing
Series&nbsp;C stock investors, whereby the Company raised a total of $20.0&nbsp;million. As originally issued, the Convertible Notes accrued interest at 10% per year and matures on the earliest of
July&nbsp;31, 2009, the consummation of a significant sale of assets of the Company outside the normal course of business, or upon an uncured event of default. Subsequently, the maturities of the
Convertible Notes were initially extended to October&nbsp;31, 2009, after which they became due. In connection with
the closing of the $35&nbsp;million term loan agreement in July 2012, the Company further extended the maturity date of the Convertible Notes to July&nbsp;1, 2017, and as a result the Convertible
Notes are classified as a long-term obligation as of September&nbsp;30, 2012 and 2013. Interest has not been paid on the Convertible Notes since inception and is therefore, presented as long-term
accrued interest. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Convertible Notes are convertible into preferred stock of the Company. Upon completion of the Company's next preferred stock equity financing, the Convertible Notes will convert automatically into
the series of preferred stock issued in that financing, at a conversion price equal to the price per share for such financing. The Convertible Notes are secured by all assets of the Company, with such
security interest being subordinated to the security interest granted by the Company to its commercial bank and the $35&nbsp;million term loan agreement. Pursuant to an intercreditor agreement the
Company entered into in July&nbsp;2012, the Company is not permitted to pay interest on these notes until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Convertible Notes also provide for an amendment of the voting agreement between the Company and the majority of its stockholders, pursuant to which the major investor has the right to increase the
maximum size of the board of directors to 11 and the major investor also has the right to appoint up to 6 of the directors. As of September&nbsp;30, 2013, the major investor had not exercised either
of these rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Convertible Notes also provide for the issuance of common stock warrants exercisable for a number of shares equal to 60% of the principal amount of the Convertible Notes, divided by the conversion
price of the Convertible Notes, which is, initially, the original issue price of the Series&nbsp;C preferred stock. The warrants are only exercisable following conversion of the Convertible Notes
into preferred stock and will be exercisable for shares of common stock of the Company. As of September&nbsp;30, 2012, the warrants had all been issued, with an expiration date five years from the
date of each corresponding Convertible Note's issuance (see Note&nbsp;9). </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>During
fiscal 2013, the carrying value of the Convertible Notes was reduced by $0.6&nbsp;million due to the recognition of value associated with the modification of common stock warrants issued in
connection with the Convertible Notes. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>During
fiscal 2012, the Company repaid $10.0&nbsp;million of the outstanding Convertible Notes using proceeds of the July 2012 term loan agreement. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-20</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=167,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=774815,FOLIO='F-20',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_21"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 6. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Subordinated Note  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2009, the Company issued a subordinated note (the "Subordinated Note") to one of the existing Series&nbsp;C preferred stock investors raising a
total of $13.0&nbsp;million. The Subordinated Note accrues simple interest at 5% per year and had an original maturity of the earliest of March&nbsp;31, 2010, the consummation of a significant
sale of assets of the Company outside the normal course of business, or upon an uncured event of default. In connection with the closing of the term loan agreement during the year ended
September&nbsp;30, 2012, the maturity of the Subordinated Note was extended to July&nbsp;1, 2017, and, as a result, the Subordinated Note is classified as a long-term obligation as of
September&nbsp;30, 2012 and 2013. Interest has not been paid on the Subordinated Note since inception and is therefore, presented as long-term accrued interest. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Subordinated Note is secured by all assets of the Company, with such security interest subordinated to the security interest granted by the Company to both its commercial bank and the term loan
agreement. Pursuant to an intercreditor agreement the Company entered into in July&nbsp;2012, the Company is not permitted to pay interest on these notes until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
the Company consummates a merger of the Company or a sale of all or substantially all of the Company's assets, or a significant asset sale prior to the full repayment of the Subordinated Note,
then, at the written election of the subordinated note holder, the holder of the Subordinated Note will be entitled to be repaid the entire outstanding balance under the Subordinated Note plus an
additional amount equal to the outstanding principal under the Subordinated Note, plus all accrued interest. The Company has determined that this feature is an embedded derivative requiring
bifurcation and separate accounting. The fair value of this embedded derivative liability was $0 and $7.4&nbsp;million as of September&nbsp;30, 2012 and 2013. The fair value of the embedded
derivative was measured using a with and without valuation methodology. The fair value is primarily driven by the assessment of the probability and timing of scenarios which would trigger the payment
of the additional amount equal to the outstanding principal totaling $13.0&nbsp;million under the Subordinated Note. The probability of such qualifying transactions increased greatly in the year
ended September&nbsp;30, 2013. The change in fair value of $7.4&nbsp;million was recorded to change in fair value of Subordinated Note embedded derivative liability in the year ended
September&nbsp;30, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Minimum
principal payments on the Company's outstanding debt, consisting of the bank line of credit, the term loan agreement, the Convertible Notes, and the Subordinated Note, as of
September&nbsp;30, 2013 are as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:95pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ending September&nbsp;30:

<!-- COMMAND=ADD_SCROPPEDRULE,95pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amounts </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,330</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2015</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>107</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2016</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,112</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>49,716</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>46</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Thereafter</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>374</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63,685</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-21</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=168,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=71134,FOLIO='F-21',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_22"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 7. Commitments and Contingencies  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Capital Leases  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Certain manufacturing equipment is accounted for as a capital lease and are included in property and equipment as of September&nbsp;30, 2012 and
2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Future
minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of September&nbsp;30, 2013 is as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:95pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ending September&nbsp;30,

<!-- COMMAND=ADD_SCROPPEDRULE,95pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amounts </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,298</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2015</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>897</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2016</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>877</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>73</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total minimum lease payments</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,145</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less amount representing estimated executory costs (such as taxes)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(26</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net minimum lease payments</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,119</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less amount representing interest</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(403</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Present value of net minimum lease payments</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,716</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less discount related to warrants</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(35</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capital lease liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,681</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less current portion</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,029</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term portion</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,652</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>Depreciation expense on equipment under capital leases was $0.6&nbsp;million and $0.6&nbsp;million for fiscal 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Operating Leases  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company conducts certain operations using leased property and equipment. The property and equipment leases require the Company to pay certain
property taxes, insurance, and maintenance expense and expire on dates ranging through 2025. Total rental expense on operating leases for fiscal 2012 and 2013 amounted to $1.4&nbsp;million and
$1.6&nbsp;million. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Future
minimum lease payments under operating leases that have initial or remaining lease terms in excess of one year from September&nbsp;30, 2013 were as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:95pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ending September&nbsp;30,

<!-- COMMAND=ADD_SCROPPEDRULE,95pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amounts </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>974</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2015</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>769</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2016</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>597</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>599</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>611</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Thereafter</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,276</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,826</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-22</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=169,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=31279,FOLIO='F-22',FILE='DISK131:[13ZDG1.13ZDG47201]FM47201A.;23',USER='CHE106820',CD='21-FEB-2014;07:49' -->
<A NAME="page_fm47201_1_23"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 7. Commitments and Contingencies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Contingencies  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company may be subject to legal proceedings and litigation arising in the ordinary course of business. The Company will record a liability when it
believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company expects to periodically evaluate developments in its legal matters that could
affect the amount of liability that it has previously accrued, if any, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the
estimated amount of, a loss related to such matters, and the Company's judgment may be
incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss
in excess of the amount accrued, and such amounts could be material. Management is not aware of any legal matters upon where the final disposition is expected to have a material effect on the
business. See Note&nbsp;13 for further discussion regarding product liabilities. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 8. Collaboration and Partner Arrangements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company has recognized the following revenues from its collaboration and partner agreements during fiscal 2012 and 2013 (in thousands): </FONT></P>
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<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>P&amp;G</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,880</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,781</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Teva</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>11,350</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,683</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Actavis/Par</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>18,139</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,551</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Agile</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,014</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,904</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,477</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>351</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>42,860</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>50,270</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
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 <P style="font-family:arial;"><FONT SIZE=2><B><I> The Procter&nbsp;&amp; Gamble Company  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2005, the Company entered into a multi-faceted collaboration arrangement with The Procter&nbsp;&amp; Gamble Company, or P&amp;G. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
relationship includes a world-wide license to P&amp;G for the use of certain of the Company's technologies for products in specific fields in which P&amp;G operates. P&amp;G paid the Company a
$3.0&nbsp;million fee for the license plus
additional future milestone payments for each qualifying product that the Company develops for P&amp;G. The Company has received a $2.0&nbsp;million milestone for the first series of products developed
by the Company. If all of the new products currently under development for P&amp;G are completed successfully, the Company could receive an aggregate of $5.0&nbsp;million in milestone payments in
connection with the approval and launch of these products. P&amp;G's license is perpetual and irrevocable. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company entered into a long term joint development agreement under which the Company performs numerous development activities for P&amp;G based upon agreed-upon statements of work and budgets. The
development work performed by the Company under this agreement is billed to P&amp;G on a time and materials basis, at cost. The P&amp;G joint development agreement expires on June&nbsp;13, 2015. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-23</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 8. Collaboration and Partner Arrangements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company also entered into a commercial supply agreement for the production of all products developed by the Company for P&amp;G. The Company has developed and commercialized several products which are
currently marketed and sold by P&amp;G under the brand name Crest Advanced Seal Whitestrips, or Crest Whitestrips. Several additional products are currently being developed by the Company for P&amp;G, which
are expected to launch in 2015 and beyond. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition to the other agreements, and as part of the overall collaboration agreement, the Company also acquired certain patents from P&amp;G in 2005. In exchange for the assignment of these patents,
the Company issued 1,266,830 shares or our common stock as payment for the patent acquired. The Company also granted P&amp;G certain co-sale and board observer rights in connection with the shares. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company's current supply agreement with P&amp;G will expire in August 2014, but the Company expects the agreement to be renewed in the first half of 2014. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Teva Pharmaceuticals USA, Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2004, the Company entered into an arrangement with Barr Laboratories, or Barr, for four generic products. The Company entered into three separate
agreements with Barr, one in 2006 and two in 2007, to develop and commercialize additional products. In 2008, Teva Pharmaceutical Industries,&nbsp;Ltd., or Teva, acquired Barr. Following this
acquisition, Teva discontinued four of these development programs. One of the continuing programs has resulted in an approved product currently marketed by Teva, Clonidine Transdermal
Delivery System, or TDS, and two other products are pending regulatory approval. Under the Company's current agreements, the Company is not eligible for additional milestone payments. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Under
the agreements, the Company receives compensation for developing the products, generally on a time and materials basis. For the product currently being manufactured by the Company, we generate
product sales with a cost-plus margin and in addition, the Company receives a profit share based on "net profits" earned by Teva for each product. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>In
2007, Barr invested $5.0&nbsp;million in convertible notes of the Company. In 2007, the notes and all accrued interest were converted into the Series&nbsp;C preferred stock financing completed
by the Company, whereby Barr received 5,839,883 shares of Series&nbsp;C preferred stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
term of each commercial agreement with Teva extends, on a product-by-product basis, through the last day of the tenth full calendar year following the launch date of each product, with automatic
one-year renewals. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Par Pharmaceutical, Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>On May&nbsp;11, 2002, the Company entered into an arrangement to pursue development and commercialization of a generic version of the transdermal
fentanyl product with Abrika&nbsp;LLLP. In 2007, Abrika was acquired by Actavis,&nbsp;Inc. Under the agreements, the Company agreed to develop the product and to assist Actavis with the regulatory
filing and ultimate approval of such product. In October 2012, Actavis divested this product to Par who assumed the various agreements. Under the Company's current agreements, the Company is not
eligible for additional milestone payments. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company developed the product, Fentanyl TDS, which was commercially launched in 2007. The Company was paid for the development work performed under the agreements and currently generates </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-24</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 8. Collaboration and Partner Arrangements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>product
sales at a cost-plus margin and in addition, receives a royalty on the net sales of the product by Par. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
part of the initial agreements, Abrika, in consideration for paying for the development of the product received 1,009,860 shares of the Company's common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
commercial agreement with Par has a term of twenty years, and expires on November&nbsp;12, 2023. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Agile Therapeutics, Inc.  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2006, the Company entered into an arrangement with Agile to develop a new transdermal patch product using the Agile's previously developed
technology. Under the arrangement, the Company has performed process development and manufacturing of the product. For the development work performed, Agile paid the Company in multiple forms,
including time and materials and milestones for achievement of certain development goals. During fiscal 2012 and 2013, Agile paid the Company $3.5&nbsp;million towards leasehold improvements
incurred by the Company to its facilities to provide for adequate manufacturing space for this product once it is approved, which will be recognized as rental income in future years as the facility is
used for production. In addition, in the year ended September&nbsp;30, 2013, Agile paid $0.6&nbsp;million to the Company for idle facility charges, which are presented on the income statement as
other income. Under the Company's current agreements, the Company is not eligible for additional milestone payments. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
term of the Company's contract with Agile continues until the Company has commercially produced an agreed-upon quantity of patches, currently projected to occur no earlier than five years
following the commercial launch of AG200-15. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Other Partner Arrangements  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2013, the Company entered into an arrangement for the development of two generic transdermal products. Under the arrangement, the partner and the
Company will equally fund all costs of developing the products. The Company will be reimbursed for its share of all out of pocket costs and will be required to reimburse the partner for its share of
all development, clinical and other costs up to and including regulatory filing. The Company will also be reimbursed for certain development milestones which will total $3.5&nbsp;million for both
products. The milestones are based on achieving certain stages of development. The Company received $0.5&nbsp;million of these milestones upon signing the agreement and is amortizing these into
income over the expected development period of the products. Upon regulatory approval, the Company will manufacture and sell the product to its partner and will be paid on a cost-plus basis with no
margin. In addition, the Company will be paid an equal share of the profits of each product, based on the net profits of each product of the partner. The profit sharing percentage may be less than 50%
for one of the products if the Company elects not to participate in the funding of any potential regulatory litigation incurred by the partner related to the patents that have not fully expired for
the brand name product. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 9. Warrants  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company issued warrants to purchase shares of the Company's stock as part of several transactions from 2008 through 2013. The warrants have been recorded as either equity instruments or liability
instruments based on the terms of the warrants. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-25</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 9. Warrants (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Preferred Stock Warrants  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company issued warrants to purchase Series&nbsp;C preferred stock, which comprise the only warrants to purchase preferred stock issued by the
Company as of September&nbsp;30, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
connection with various financing transactions prior to October&nbsp;1, 2012, the Company issued warrants for 2,714,594 shares of Series&nbsp;C preferred stock. During fiscal 2012, 1,399,760 of
these warrants expired unexercised. All of the Series&nbsp;C preferred stock warrants are exercisable for a period of five years from issuance except certain warrants to purchase 163,522 shares of
Series&nbsp;C preferred stock that expire upon the earlier of five years and the closing of an initial public offering. The warrants are exercisable in cash or through a cashless exercise provision.
Under the cashless exercise provision, the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the
Series&nbsp;C preferred stock at the time of exercise of the warrant after deducting the aggregate exercise price. In the event that all outstanding shares of the Series&nbsp;C convertible
preferred stock are converted into common stock, the warrants will be exercisable for the same number of shares of common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>For
the year ended September&nbsp;30, 2012, the Company issued 425,161 warrants to purchase Series&nbsp;C preferred stock, with a fair value at issuance of $0.2&nbsp;million in connection with
the note payable provided by the Company's commercial bank and another financial institution (see Note&nbsp;6). </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2012 and 2013, warrants to purchase 1,739,992 shares of Series&nbsp;C preferred stock were outstanding with a weighted average exercise price of $0.90 per share. Of this
amount, warrants to purchase 1,380,241 shares of Series&nbsp;C preferred stock contain antidilution protection. Therefore, the Company evaluated these warrants as derivative instruments, and
accordingly recorded the warrants as liabilities at fair value at the time of issuance, with the fair value then adjusted at each subsequent balance sheet date. The Company will continue to adjust the
preferred stock warrant liabilities for changes in the fair value of the warrants until the earlier of (i)&nbsp;the exercise of the warrants, (ii)&nbsp;the conversion of the underlying preferred
stock into common stock, at which time, the liability will be reclassified to stockholders' equity, and (iii)&nbsp;the expiration of the warrants. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
fair value of the outstanding convertible preferred stock warrants containing antidilution protection were remeasured as of each year end using the Option Pricing Model in fiscal 2012 and the
Probability-Weighted Expected Return Model in fiscal 2013. We use a number of assumptions to estimate the fair value including the likelihood of various scenarios, the expected volatility and the fair
value of the underlying stock under each scenario. These assumptions are: </FONT></P>
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<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Remaining contractual term (in years)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6.07&nbsp;-&nbsp;9.24</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5.07&nbsp;-&nbsp;8.24</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.62&nbsp;-&nbsp;1.64%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1.39&nbsp;-&nbsp;2.02%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected volatility</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>65&nbsp;-&nbsp;75%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>68&nbsp;-&nbsp;77%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected dividend rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The fair value of these warrants totaled $0.5&nbsp;million and $0.6&nbsp;million as of September&nbsp;30, 2012 and 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-26</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 9. Warrants (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Common Stock Warrants  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In connection with the issuance of the Convertible Notes in 2008 and 2009 (see Note&nbsp;6), the Company issued warrants to the Convertible Note
holders for the purchase of an aggregate of 12,000,000 shares of common stock, at an exercise price of $0.21. As of September&nbsp;30, 2012, any discount recognized as a result of issuing these
warrants had been fully amortized. The fair value of these warrants upon issuance was recorded in stockholders' deficit. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
July 2012, the Company issued a warrant for the purchase of 823,304 shares of common stock with a fair value totaling $0.1&nbsp;million in connection with the term loan agreement that closed in
July 2012 (see Note&nbsp;6). All of these warrants issued are exercisable until the earlier of five years from issuance and the closing of an initial public offering of common stock. The fair value
of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with the following assumptions: common stock value of $0.22 per share, contractual term of
5&nbsp;years, risk-free interest rate of 0.62%, expected volatility of 75%, and expected dividend yield of 0%. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
December 2012, the Company issued a warrant for the purchase of 170,339 shares of common stock with a fair value totaling $23,000 in connection with the second drawdown under this term loan
agreement (see Note&nbsp;6). All of these warrants issued are exercisable until the earlier of five years from issuance and the closing of an initial public offering of common stock. The fair value
of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with the following assumptions: common stock value of $0.22 per share, contractual term of
5&nbsp;years, risk-free interest rate of 0.63%, expected volatility of 75%, and expected dividend yield of 0%. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
addition, the Company issued a warrant for the purchase of 82,000 shares of common stock with a fair value totaling $15,000 in connection with the lease arrangement that closed in September 2013
with an existing Series&nbsp;C preferred stock investor (see Note&nbsp;7). The fair value of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with
the following assumptions: common stock value of $0.30 per share, contractual term of 5&nbsp;years, risk-free interest rate of 1.41%, expected volatility of 76%, and expected dividend yield of 0%. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Convertible Preferred Stock  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Convertible preferred stock as of September&nbsp;30, 2012 and 2013 consists of the following (in thousands, except for share and per share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:67%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="84pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="53pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="86pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="92pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Authorized </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Original<BR>
Issue Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Issued and<BR>
Outstanding </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Aggregate<BR>
Liquidation Amount </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;A</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,114,100</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,114,066</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>490</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;B</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,602,200</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.875</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,602,132</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,652</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;C</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,000,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.917</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>27,318,702</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>50,119</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance as of September&nbsp;30, 2012 and 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>65,716,300</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 <P style="font-family:arial;"><FONT SIZE=2><I> Voting Rights</I></FONT><FONT SIZE=2> &#151; The Series&nbsp;A, B, and C preferred stockholders have a right to the number of votes
equal to the number of shares of common stock issuable upon conversion of the preferred stock, except as otherwise </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-27</FONT></P>

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<A NAME="page_fm47201_1_28"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>required
by law. The Series&nbsp;C stockholders have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. In addition, all
preferred stockholders, as a class, have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Dividends</I></FONT><FONT SIZE=2> &#151; The Series&nbsp;A, B, and C preferred stockholders are entitled to receive noncumulative dividends, if and when declared by the board of directors
prior and in preference to any dividend on common stock, at the rate of 8% of the original issue price. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Conversion</I></FONT><FONT SIZE=2> &#151; Each share of preferred stock may be converted, at the option of the holder, into such number of fully paid and nonassessable shares of common stock as
is determined by dividing the original issue price for the relevant series of preferred stock by the then-applicable conversion price in effect at the time of conversion. The current conversion ratio
for all outstanding shares of preferred stock is one-for-one. Each share of preferred stock will automatically convert to common stock upon the consent of holders of at least 67% of the shares of
preferred stock outstanding, or the closing of an underwritten registered public offering of shares of common stock that reflects a value of the Company not less than $3.68 per share and results in
gross proceeds of at least $50.0&nbsp;million. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Liquidation</I></FONT><FONT SIZE=2> &#151; In the event of a liquidation, dissolution, or winding up of the Company, the Series&nbsp;C preferred stockholders are entitled to a preference
payment prior to any distribution of assets or surplus funds of the Company to the Series&nbsp;A and B preferred stockholders or to the common stockholders. The liquidation preference payments to
the Series&nbsp;C preferred stockholders will be two times the original issuance price of the Series&nbsp;C preferred stock, plus any accrued but unpaid dividends. Upon completion of the
preference payment to the Series&nbsp;C preferred stockholders, the Series&nbsp;A and B preferred stockholders are entitled to share equally in preference payments until the Series&nbsp;B
preferred stockholders receive one times the original issuance price of the Series&nbsp;B preferred stock; thereafter, only the Series&nbsp;A preferred stockholders receive preference payments
until they have received a cumulative amount of two times the original issuance price of the Series&nbsp;A preferred stock. All of the foregoing preferred stock preferences must be paid prior to any
distribution of any assets or surplus funds of the Company to the common stockholders. The Company classifies the convertible preferred stock outside of stockholders' deficit and records it at maximum
liquidation value as the shares contain liquidation features that are not solely within its control. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Participation</I></FONT><FONT SIZE=2> &#151; In the event of a liquidation, dissolution, or winding up of the Company, and only after all of the Series&nbsp;A, B, and C preferred stockholders
have received all of their preference payments, any remaining assets or surplus funds of the Company will be distributed ratably to the common stockholders and Series&nbsp;B preferred stockholders
as if the Series&nbsp;B preferred stock had all been converted into common, but only to the extent that Series&nbsp;B stockholders will be entitled to receive a maximum of one times the original
issuance price of the Series&nbsp;B preferred stock from such distribution. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-28</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Common Stock  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company was authorized to issue up to 115,000,000 shares of common stock as of September&nbsp;30, 2012 and 2013 at par value of $0.001 per
share. The Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows: </FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances under stock option plans</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,354,405</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>17,996,634</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Conversion of convertible preferred stock</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances upon exercise of convertible preferred stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances upon exercise of common stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>12,823,304</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>60,952,601</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>68,847,169</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><I> Repurchases of Common Stock from Founders</I></FONT><FONT SIZE=2> &#151; In connection with the Series&nbsp;C financing the Company, in accordance with specific stock repurchase agreements
approved by the board of directors, purchased from the two founders an aggregate of 2,180,313 shares of common stock at a purchase price of $0.9173 per share. The stock repurchase agreements also
provide for the Company to repurchase an additional total of 2,180,313 shares of common stock held by each of the two founders at a price of $0.9173 per share, in four separate closings, at six-month
intervals of 408,809, 408,809, 545,078, and 817,617 shares from each founder. These agreements were amended in March 2008 to suspend the Company's obligation to repurchase these shares if, in the
discretion of the Company's board of directors, any such repurchase would result in a material adverse effect on the Company's financial condition. As these shares are conditionally redeemable, they
are classified outside of stockholders' deficit. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>From
March 2008 through September 2012, the Company's board of directors has determined that it would not be in the best financial interests of the Company to use cash to repurchase any of the
founders' shares, but has authorized the Company to use non-cash consideration for such repurchases under certain conditions. In December 2009, the board of directors determined that it was in the
Company's interests to accept a proposal by
a founder to use the cancellation of all of that founder's then-current indebtedness to the Company, comprising the balance on a note receivable and all accrued interest, as purchase consideration in
order to effect a partial repurchase under the founder's stock repurchase agreement with the Company. Accordingly, the Company repurchased 690,454 shares from this founder, reducing the agreement to
repurchase shares from that founder to 1,489,859. Following the repurchase, the founder resumed periodic borrowing from the Company on the same terms of the original note. In September 2012, the
Company received a similar proposal from the same founder in which that founder agreed to allow the Company to repurchase 155,920 shares from that founder using the cancellation in full of that
founder's note and accrued interest owed to the Company, as well as the termination of that founder's right to borrow further amounts from the Company, as consideration (see Note&nbsp;5). This
repurchase by the Company reduced the Company's number of shares that can be repurchased from that founder from 1,489,859 to 1,333,939 shares. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-29</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=176,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=283926,FOLIO='F-29',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_30"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2012 and 2013, the Company has a remaining agreement to repurchase 1,333,939 from one founder and 2,180,313 from the other founder, but such repurchase is contingent on
approval by the board of directors. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 11. Stock-Based Compensation  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Equity Incentive Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of September&nbsp;30, 2013, the Company has two stock option plans, one sponsored by the Company, or the Corium Plan and the stock option plan of
StrataGent,&nbsp;Inc., or the StrataGent Plan. StrataGent,&nbsp;Inc. was acquired by the Company as a wholly owned subsidiary on September&nbsp;20, 2007. The unexpired, unexercised options
outstanding for those employees of StrataGent who remained Company employees after the merger was effected were assumed by the Company. Each StrataGent option became exercisable into whole shares of
Corium stock based on an agreed exchange ratio and per share exercise price such that the total value of the option grant did not change. The Company elected to make no further grants under the
StrataGent Plan; however its terms continue to govern all options issued under that plan. No additional shares available for grant were assumed by the Company, and any options that were returned to
the pool subsequent to the merger were canceled and were not made available for future grants. This wholly owned subsidiary was dissolved during 2008. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Corium Plan consists of the 2002 stock option plan that expired in 2012 and the 2012 equity incentive plan which was adopted in November 2012. Under the Corium Plan, there are 2,508,950 shares of
common stock reserved for issuance as of September&nbsp;30, 2013. The exercise price of each option issued under the Corium Plan is no less than the fair value of the Company's stock on the date of
the grant as determined by the board of directors. The maximum term of the options is 10&nbsp;years and the maximum vesting period is 4&nbsp;years. The Company granted 10,032,607 stock options
under the Corium Plan during fiscal 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-30</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=177,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=66895,FOLIO='F-30',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_31"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 11. Stock-Based Compensation (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A
summary of activity under the Corium Plan during fiscal 2012 and 2013 is as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:57%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"140%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="140%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares<BR>
Available<BR>
for&nbsp;Grant </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Stock<BR>
Options<BR>
Outstanding </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted<BR>
Average<BR>
Exercise&nbsp;Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted&nbsp;Average<BR>
Remaining<BR>
Contractual&nbsp;Life<BR>
(Years) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Aggregate<BR>
Intrinsic<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; October&nbsp;1, 2011</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,775,686</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>8,220,394</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.34</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cancelled</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>560,416</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(560,416</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.66</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; September&nbsp;30, 2012</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,336,102</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,659,978</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.31</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>5.20</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional shares authorized</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
8,000,001</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(10,032,607</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,032,607</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(45,500</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.23</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>862,516</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(862,516</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cancelled</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,342,938</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,342,938</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.83</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,508,950</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>15,441,631</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,287</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Options exercisable&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
8,322,451</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
0.21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
5.44</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
718</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Options vested and expected to vest&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,166,525</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,105</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>All outstanding options under the Corium Plan as of September&nbsp;30, 2013 have an exercise price between $0.21 and $0.23 per share. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
weighted average grant date fair value of options granted fiscal 2013 was $0.13. No stock options were granted during fiscal 2012. The Company estimated the fair value of stock options granted
during fiscal 2013 using the Black-Scholes option pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair
value of the employee stock options was estimated using the following assumptions: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="84pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected term (in years)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>2.50&nbsp;-&nbsp;6.08</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>0.70%&nbsp;- 1.38%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected volatility</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>71%&nbsp;- 75%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected dividend rate</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-31</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=178,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=150367,FOLIO='F-31',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_32"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 11. Stock-Based Compensation (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A summary of activity under the StrataGent Plan for fiscal 2012 and 2013 is as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:73%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"110%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="110%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Stock&nbsp;Options<BR>
Outstanding </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted&nbsp;Average<BR>
Exercise&nbsp;Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted&nbsp;Average<BR>
Remaining<BR>
Contractual&nbsp;Life<BR>
(Years) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Aggregate<BR>
Intrinsic<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; October&nbsp;1, 2011</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>982,490</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(624,165</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; September&nbsp;30, 2012</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>358,325</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1.82</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional options authorized</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(219,014</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.01</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(93,258</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cancelled</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>46,053</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.07</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3.13</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Options exercisable&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
46,053</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
0.07</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
3.13</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Options vested and expected to vest&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>46,053</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.07</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3.13</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>All outstanding options under the StrataGent Plan have an exercise price between $0.0174 and $0.0869 per share. There were no options granted under the
StrataGent Plan during fiscal 2012 or fiscal 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Employee
stock-based compensation expense for fiscal 2012 and 2013 is classified in the statements of operations as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="59pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="59pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Years ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>35</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>21</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>39</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>66</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>235</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total stock-based compensation</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>66</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>330</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>As of September&nbsp;30, 2013, there was a total of $0.7&nbsp;million of unrecognized employee compensation cost, net of estimated forfeitures, related to
non-vested stock option awards, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 2.1&nbsp;years. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-32</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=179,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=561067,FOLIO='F-32',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_33"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 12. Product Recall Liability  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
In fiscal 2008 and fiscal 2010, Actavis issued two voluntary recalls of certain lots and strengths of Fentanyl TDS manufactured by the Company and sold and distributed by Actavis in the United States.
The Company and Actavis negotiated financial settlements for these two recalls, and the Company accrued amounts related to these settlements in fiscal 2009 and 2011. Such recall liabilities were
subsequently reduced through various mechanisms per the terms of the settlement agreements. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
October 2012, the Company reached a revised settlement related to the First and Second Recalls which provides for a total and combined remaining liability of $5.0&nbsp;million. The revised
liability will be repaid through quarterly payments in arrears based on a percentage of the average of the total net revenues recorded by the Company related to Fentanyl TDS. These payments will be
paid to Actavis starting in July&nbsp;1, 2013 and continuing through April&nbsp;1, 2017. To the extent that the revised settlement liability is not repaid as of April&nbsp;1, 2017, the remaining
liability, if any, will be converted into the most recent form of capital stock issued by the Company in connection with a financing, at the price per share of that financing. The revised liability
does not accrue interest. As a result of the revised settlement, the Company recorded a gain on settlement of the recall liability of $0.6&nbsp;million which is included in the income statement for
the year ended September&nbsp;30, 2012. During the year ended September&nbsp;30, 2013, the Company repaid $0.2&nbsp;million of this liability. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table summarizes the changes to the product recall liability (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Beginning balance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>8,623</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-cash reductions in recall liability prior to settlement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
(3,041</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gain on settlement of recall liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(582</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Payment of settlement liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(168</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ending balance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,832</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 13. Product Liability  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
As discussed in Note&nbsp;7, there are other potential liabilities that the Company may incur relating to the products it manufactures, including potential product liability claims. For fiscal 2012
and 2013, the Company has provided a reserve for these claims taking into account the insurance coverage maintained for such claims, the nature and extent of such claims, and the Company's past
success in defending and/or settling such claims. The Company does not expect that the financial impact that could arise from such claims will be material. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-33</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=180,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=65729,FOLIO='F-33',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_34"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 13. Product Liability (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table summarizes the changes to the product liability reserve (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Beginning balance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>720</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Settlement payments</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
(307</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>
(1,300</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>527</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>670</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Ending balance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>720</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>90</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 14. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The following table sets forth the computation of the Company's basic and diluted net loss per share attributable to common stockholders during fiscal 2012 and 2013 (in thousands, except share and per
share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(5,443</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,227,342</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,452,114</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.24</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.62</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common
stockholders for the periods presented because including them would have been antidilutive: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock options to purchase common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,354,405</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>17,996,634</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock warrants</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,823,304</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrants</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders
after giving effect to the conversion of preferred stock </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-34</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=181,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=194977,FOLIO='F-34',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_35"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 14. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>into
common stock as though the conversion had occurred at the beginning of the year ended September&nbsp;30, 2013 (in thousands, except share and per share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="100pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended<BR>
September&nbsp;30, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Unaudited)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,877</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma adjustments to reflect change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(14</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(13,891</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,452,114</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma adjustments to reflect assumed conversion of convertible preferred stock</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>58,487,014</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.24</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 15. Income Taxes  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of the net operating loss carryforwards and research and development tax credit
carryforwards. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
Company operates in only one jurisdiction, the United States. The following table presents a reconciliation of the tax expense (benefit) computed at the statutory federal rate and the Company's
tax expense (benefit) for the period presented (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Year Ended September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income tax benefit&nbsp;&#151; computed as 34% of pretax loss</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,851</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(4,717</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Effect of nondeductible expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>881</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>695</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>State and local income tax expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(6</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>876</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,270</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Effect of tax credits and other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(50</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>State deferred taxes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>75</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(188</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>19</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(7</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-35</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=182,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=352688,FOLIO='F-35',FILE='DISK131:[13ZDG1.13ZDG47201]FO47201A.;47',USER='BKYNARD',CD=';3-MAR-2014;11:51' -->
<A NAME="page_fo47201_1_36"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 15. Income Taxes (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities as of
September&nbsp;30, 2012 and 2013 are as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="58pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net operating loss carryforward</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>21,493</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>21,491</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Depreciation</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>483</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>720</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>944</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,782</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development credit</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,920</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,970</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>State deferred taxes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,777</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,965</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated debt embedded derivative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,505</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>654</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>801</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gross deferred tax assets</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>27,271</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>31,234</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(26,733</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(30,997</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net deferred tax assets</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>538</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(538</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gross deferred tax liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(538</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:27pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net deferred tax liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The disclosures of gross deferred tax assets and liabilities presented above have been restated to provide additional information on the components of deferred
tax assets and to correct other classification errors. These changes had no impact on the balance sheet or results of operations. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2013, the Company had net operating loss carryforwards for federal and state income tax purposes of $63.2&nbsp;million and $12.0&nbsp;million. These net operating loss
carryforwards will expire, if not utilized, beginning in 2026 and 2017 for federal and state income tax purposes, respectively. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Realization
of deferred tax assets is dependent on future taxable income, the existence and timing of which is uncertain. Based on the Company's history of losses, management has determined it cannot
conclude that it is more likely than not that the deferred tax assets will be realized, and accordingly has placed a full valuation allowance on the net deferred tax assets. The valuation allowance
increased by $0.9&nbsp;million and $1.8&nbsp;million in fiscal 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2013, the Company had credit carryforwards of $2.0&nbsp;million and $1.3&nbsp;million available to reduce future taxable income, if any, for federal and California state
income tax purposes. The Federal credit carryforwards begin to expire in 2022. California credits have no expiration date. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a
corporation. Accordingly, the Company's ability to utilize net operating losses and credit carryforwards may be significantly limited in the future as a result of such an ownership change. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-36</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 15. Income Taxes (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company did not have any material unrecognized tax benefits as of September&nbsp;30, 2012 and 2013. It is difficult to predict the final timing and resolution of any particular uncertain tax
position. Based on the Company's assessment, including experience and complex judgments about future events, the Company does not expect that changes in the amount of unrecognized tax benefits during
the next 12&nbsp;months will have a significant impact on the Company's financial position or results of operations. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>It
is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, as necessary. There was no interest expense or
penalties related to unrecognized tax benefits recorded through September&nbsp;30, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company files income tax returns in the U.S. federal jurisdiction as well as in California and Michigan. The tax years ending September&nbsp;30, 2010 to September&nbsp;30, 2012 remain open to
examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes
generated in those early years, which have been carried forward and may be audited in subsequent years when utilized. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 16. Employee Benefit Plan  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company has a defined-contribution plan that allows for discretionary contributions from the Company. Contributions totaled $80,000 and $90,000 for fiscal 2012 and 2013. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 17. Segment and Enterprise-Wide Information  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company's chief operating decision maker is its chief executive officer. The chief executive officer reviews its operating results on an aggregate basis for purposes of allocating resources and
evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or operating results for levels or components.
Accordingly, the Company has a single reporting segment and operating unit structure. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>All
of the Company's revenues are derived from partners located in the United States and all long-lived assets are located in the United States. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 18. Subsequent Events  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company has evaluated subsequent events through March&nbsp;3, 2014, the date the financial statements were available to be issued. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Recapitalization  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In December&nbsp;2013, the Company entered into an amendment and conversion agreement with Essex Woodlands pursuant to which the Company and Essex
Woodlands (i)&nbsp;amended the Convertible Notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of the Company's common
stock immediately prior to the closing of an initial public offering of the Company's common stock or into 20,569,231 shares of the Company's Series&nbsp;C preferred stock immediately prior to the
first closing of a qualified equity financing that occurs prior to the closing of an initial public offering of the Company's common stock and the Convertible Notes will be terminated;
(ii)&nbsp;amended the terms of the Subordinated Note to provide that it will automatically convert either into 34,210,182 shares of the Company's common stock immediately prior to the closing of an
initial public </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-37</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> As of and for the years ended September&nbsp;30, 2012 and 2013 </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 18. Subsequent Events (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>offering
of the Company's common stock or into 34,210,182 shares of a new series of the Company's preferred stock (with identical rights, preferences and privileges as the Company's Series&nbsp;C
preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs prior to the closing of an
initial public offering of the Company's common stock and the Subordinated Note will be terminated; and (iii)&nbsp;requires Essex Woodlands to effect the automatic conversion of
all outstanding shares of the Company's preferred stock in connection with the completion of an initial public offering of the Company's common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Simultaneously,
the Company also entered into a repurchase agreement pursuant to which the Company agreed to repurchase 10,885,884 shares of the Company's common stock for an aggregate repurchase
price of $5.2&nbsp;million from two of the Company's founders. These repurchases will occur immediately prior to the earlier of the closing of an initial public offering of the Company's common
stock and the first closing of a qualified equity financing, and these repurchases will satisfy in full all of the Company's remaining obligations under the repurchase agreements. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>*&nbsp;*&nbsp;*&nbsp;**&nbsp;</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-38</FONT></P>

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</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="fq47201_corium_international,_inc."> </A></FONT> <FONT SIZE=2><B>  CORIUM INTERNATIONAL,&nbsp;INC.    <BR>    </B></FONT></P>


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<P style="font-family:arial;"><FONT SIZE=2><B> INDEX TO CONDENSED FINANCIAL STATEMENTS<BR>
As of and for the three months ended December&nbsp;31, 2013 and 2012  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
<A NAME="FQ47201_TOC"></A> </FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="31pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Page </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fs47201_corium_international,_inc._con__cor03648"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Condensed Balance Sheets</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fs47201_corium_international,_inc._con__cor03648"><FONT SIZE=2>F-40</FONT></A></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fu47201_corium_international,_inc._con__cor05437"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Condensed Statements of Operations and Comprehensive Loss</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fu47201_corium_international,_inc._con__cor05437"><FONT SIZE=2>F-41</FONT></A></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fw47201_corium_international,_inc._con__cor07129"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Condensed Statements of Convertible Preferred Stock, Redeemable Common Stock and
Stockholders' Deficit</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fw47201_corium_international,_inc._con__cor07129"><FONT SIZE=2>F-42</FONT></A></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#fy47201_corium_international,_inc._con__cor03240"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Condensed Statements of Cash Flows</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#fy47201_corium_international,_inc._con__cor03240"><FONT SIZE=2>F-43</FONT></A></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:arial;"><A HREF="#IINotes"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes to Condensed Financial Statements</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><A HREF="#IINotes"><FONT SIZE=2>F-44</FONT></A></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-39</FONT></P>

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NAME="fs47201_corium_international,_inc._con__cor03648"> </A>
<A NAME="toc_fs47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Condensed Balance Sheets<BR>  (In thousands, except share and per share data)    <BR>    </B></FONT></P>
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<TD WIDTH="70pt" style="font-family:arial;"></TD>
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<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Pro Forma<BR>
Stockholders'<BR>
Equity as of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>ASSETS</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Current assets:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Cash and cash equivalents</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,581</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,416</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts receivable, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,129</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,706</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Unbilled accounts receivable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,495</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,366</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Inventories, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,508</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,076</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Prepaid expenses and other current assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,038</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,760</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total current assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">23,751</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19,324</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Property and equipment, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,622</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,624</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Debt financing costs, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">902</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">817</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Intangible assets, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,647</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,618</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Notes receivable&nbsp;&#151; related parties</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">101</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">TOTAL ASSETS</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">44,022</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">39,484</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;"><B>LIABILITIES, CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT</B></FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Current liabilities:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,748</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,516</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accrued expenses and other current liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,374</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">4,293</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,873</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,501</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Long-term debt, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">457</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">248</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Capital lease obligations, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,029</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">967</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">560</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">603</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,004</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">887</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues, current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,112</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2,351</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total current liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">15,157</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,366</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Long-term interest payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">11,590</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,006</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Long-term debt, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,956</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">37,272</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9,399</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">9,437</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Subordinated note</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,000</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">16,445</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,367</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,338</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Capital lease obligations, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,652</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,465</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,828</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,665</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues, net of current portion</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,688</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,625</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">102,637</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">103,619</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Redeemable common stock, par value of $.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro
forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Stockholders' deficit:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Common stock, par value of $0.001 per share, 115,000,000 shares authorized; 18,999,892 and 19,032,142 shares issued and outstanding as of
September&nbsp;30, 2013 and December&nbsp;31, 2013, actual; 58,581,294 shares issued and outstanding as of December&nbsp;31, 2013, pro forma (unaudited)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Additional paid-in capital</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(26,696</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(30,118</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accumulated deficit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(92,423</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(94,521</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Total stockholders' deficit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(119,100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(124,620</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">44,022</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">39,484</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>See accompanying notes to condensed financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-40</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fu47201_corium_international,_inc._con__cor05437"> </A>
<A NAME="toc_fu47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Condensed Statements of Operations and Comprehensive Loss<BR>  (Unaudited)<BR>  (In thousands, except share and per share data)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="69pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="69pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,972</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>8,100</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,588</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,064</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>64</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>304</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:29pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>12,624</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10,468</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Costs and operating expenses:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,233</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>5,229</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,122</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,537</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,052</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>861</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,792</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,810</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>131</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>130</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(43</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(37</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:29pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total costs and operating expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>12,287</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11,530</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>337</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,062</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,773</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,024</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(43</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,029</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Loss before income taxes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income tax benefit (expense)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.06</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.09</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,341,554</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,521,505</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-12pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
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&nbsp;&nbsp;&nbsp;
</font></p><p align=center style="font-family:arial;"> <FONT SIZE=2>
See accompanying notes to condensed financial statements.</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-41</FONT></P>

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<!-- ZEQ.=1,SEQ=188,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=623886,FOLIO='F-41',FILE='DISK131:[13ZDG1.13ZDG47201]FU47201A.;21',USER='CHE106820',CD='21-FEB-2014;07:49' -->
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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fw47201_corium_international,_inc._con__cor07129"> </A>
<A NAME="toc_fw47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Condensed Statements of Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit<BR>  (Unaudited)<BR>  (In thousands, except share
and per share data)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="36pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="32pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="32pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="40pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="51pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" style="font-family:arial;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="53pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Convertible Preferred<BR>
Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Redeemable<BR>
Common Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B><BR>
<BR>


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 </B></FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B><BR>
<BR>


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 </B></FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Common Stock </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Additional<BR>
Paid-in<BR>
Capital </B></FONT></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Accumulated<BR>
Deficit </B></FONT></TH>
<TH ROWSPAN=3 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total<BR>
Stockholders'<BR>
Deficit </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Amount </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TH ALIGN="CENTER" style="font-family:arial;">&nbsp;<BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
<TH ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><B>


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</B><BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
<TH ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><B>


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</B><BR></TH>
<TH style="font-family:arial;">&nbsp;</TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:6pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Balance&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,514,252</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">18,999,892</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(26,696</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(92,423</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(119,100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Decrease in equity associated with modification of subordinated debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(3,485</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>
(3,485</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><BR>)</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Issuance of common stock upon exercise of stock options</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">32,250</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Stock-based compensation expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">56</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">56</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:12pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TD style="font-family:arial;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:6pt;text-indent:-6pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Balance&nbsp;&#151; December&nbsp;31, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">57,261</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">



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&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,514,252</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3,224</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;">


<!-- COMMAND=ADD_GRID,"border-right:solid #000000 1.0pt;" -->


&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19,032,142</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">19</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(30,118</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(94,521</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(124,620</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="BOTTOM">
<TD style="font-family:arial;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


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&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="CENTER" style="font-family:arial;border-right:solid #000000 1.0pt;">


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&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD style="font-family:arial;">&nbsp;</TD>
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&nbsp;&nbsp;&nbsp;
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See accompanying notes to condensed financial statements.</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-42</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
NAME="fy47201_corium_international,_inc._con__cor03240"> </A>
<A NAME="toc_fy47201_1"> </A></FONT> <FONT SIZE=2><B><BR>  CORIUM INTERNATIONAL,&nbsp;INC.<BR>  Condensed Statements of Cash Flows<BR>  (Unaudited)<BR>  (In thousands)    <BR>    </B></FONT></P>
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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
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<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM OPERATING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net loss and comprehensive loss</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:8pt;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Adjustments to reconcile net loss to net cash used in operating activities:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Depreciation and amortization of property and equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">498</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">434</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Gain on disposal and sale and leaseback of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(37</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Amortization of premium on modification of subordinated note</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(40</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">43</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Change in fair value of subordinated debt embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,029</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Amortization of intangible assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">131</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">130</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Noncash amortized debt issue costs on long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">81</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">85</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Noncash amortized debt discount</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">39</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">53</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Stock compensation expense</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">172</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">56</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:21pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Changes in operating assets and liabilities:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts receivable, net</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,397</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(577</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Unbilled accounts receivable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(78</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(872</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Inventories</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(260</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">433</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Prepaid expenses and other current assets</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">55</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(722</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accounts payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(509</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(129</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Accrued expenses and other liabilities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(102</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,278</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Deferred contract revenues</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">662</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">177</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Recall liability</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">0</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(280</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:35pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Long-term interest payable</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">416</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">416</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash used by operating activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,768</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(2,679</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM INVESTING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Purchases of property and equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(3,353</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,540</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from sale of equipment</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">2</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Increase in notes receivable&nbsp;&#151; related parties</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payments for patents and licensing rights</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(135</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(100</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash used in investing activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(3,486</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,641</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH FLOWS FROM FINANCING ACTIVITIES:</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from issuance of long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,600</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payment of transaction costs on issuance of long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(65</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&#151;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Principal payments on long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(282</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(225</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Principal payments on capital lease obligations</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(149</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(256</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Borrowings on bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">1,000</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">534</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Payments on bank lines of credit</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,072</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,905</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:14pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Proceeds from exercise of stock options</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">3</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:28pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">Net cash provided (used) by financing activities</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">6,035</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(1,845</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">NET DECREASE IN CASH AND CASH EQUIVALENTS</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(219</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">(6,165</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH AND CASH EQUIVALENTS&nbsp;&#151; Beginning of period</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,245</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">13,581</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:7pt;text-indent:-7pt;"><FONT  style="font-size:8pt;line-height:9pt;"> </FONT><FONT  style="font-size:8pt;line-height:9pt;">CASH AND CASH EQUIVALENTS&nbsp;&#151; End of period</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">12,026</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">7,416</FONT></TD>
<TD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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&nbsp;&nbsp;&nbsp;
</font></p><p align=center style="font-family:arial;"> <FONT SIZE=2>
See accompanying notes to condensed financial statements.</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-43</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="IINotes"></A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Summary of Significant Accounting Policies  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Unaudited Interim Condensed Financial Statements  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The interim balance sheet as of December&nbsp;31, 2013 and the statements of operations and comprehensive loss and cash flows for the three months
ended December&nbsp;31, 2012 and 2013 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position as of December&nbsp;31, 2013 and its results of
operations and cash flows for the three months ended December&nbsp;31, 2012 and 2013. The financial data and the other financial information contained in these notes to the financial statements
related to the three month periods are also unaudited. The results of operations for the three months ended December&nbsp;31, 2013 are not necessarily indicative of the results to be expected for
the year ending September&nbsp;30, 2014 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company's audited financial statements
included elsewhere in this prospectus. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and negative cash flows from
operations. The Company has recorded net losses of $1.4&nbsp;million and $2.1&nbsp;million for the three months ended December&nbsp;31, 2012 and 2013, respectively. At December&nbsp;31, 2013,
the Company had an accumulated deficit of $94.5&nbsp;million and cash and cash equivalents of $7.4&nbsp;million. The Company's management believes that there is significant uncertainty about its
ability to operate as a going concern. The Company's ability to operate as a going concern is dependent on the Company's ability to raise additional capital which may not be available to the Company
on acceptable terms, or at all. The Company is considering various plans to raise additional financing. The failure to obtain sufficient funds on acceptable terms when needed could have a material
adverse effect on the Company's business, results of operations, future cash flows and financial condition. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Use of Estimates  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Estimates and assumptions are required to be used by management in the preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of operating revenues and operating expenses during the reporting period. Those estimates and assumptions affect revenue recognition and deferred revenues, impairment of
long-lived assets, determination of fair value of stock-based awards and other debt and equity related instruments, and accounting for income taxes. As future events and their effects cannot be
determined with precision, actual results could differ from those estimates. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Unaudited Pro Forma Stockholders' Deficit  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The pro forma stockholders' deficit assumes the following upon the effectiveness of the Company's registration statement on Form&nbsp;S-1 in
connection with a qualifying initial public offering ("IPO"):</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>all of the outstanding shares of convertible preferred stock will
automatically convert into&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the convertible notes held by Essex Woodlands
and other investors will
automatically convert into 20,569,231 shares of the Company's common stock (see Note&nbsp;4), </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the subordinated note will automatically convert into 34,210,182 shares of
the Company's common stock (see Note&nbsp;4), </FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the Company will repurchase 10,885,884 shares of the Company's common stock
for an aggregate repurchase price of $5.2&nbsp;million from two of the Company's founders. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-44</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The
Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common
stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the
period. For purposes of the diluted calculation, convertible preferred stock, options to purchase common stock and common stock warrants are considered common stock equivalents but have been excluded
from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
contemplation of an initial public offering, the Company has presented the unaudited pro forma basic and diluted net loss per share attributable to common stockholders, which has been computed to
give effect to the conversion of the convertible preferred stock into shares of common stock and the conversion of preferred stock
warrants to common stock warrants as of the beginning of the respective period. In addition, as a result of the recapitalization as discussed in Note&nbsp;4, the unaudited pro forma basic and
diluted net loss per share attributable to common stockholders for the three months ended December&nbsp;31, 2013 has been computed to give effect to (i)&nbsp;the conversion of the Convertible
Notes into 20,569,231 shares of common stock, (ii)&nbsp;the conversion of the Subordinate Note into 34,210,182 shares of common stock, and (iii)&nbsp;the repurchase of 10,885,884 shares from two
of the Company's founders as if each of these events occurred as of October&nbsp;1, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
shares of common stock issuable and the proceeds expected to be received in the IPO are excluded from this pro forma financial information. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Concentration of Credit Risk  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Four partners accounted for 98% and 97% of the Company's revenues for the three months ended December&nbsp;31, 2012 and 2013. These same partners
accounted for 100% and 93% of accounts receivable as of September&nbsp;30, 2013 and December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Revenue Recognition  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company generates revenues from agreements for the development and commercialization of its products. The terms of the agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales and royalties and profit sharing on product sales derived from
partner agreements. The Company recognizes revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable;
and collectability is reasonably assured. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Revenue
related to multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This
determination is generally based on whether any deliverable has stand-alone value to the partner. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement
consideration to identified units of accounting. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. Typically, the Company has not granted licenses to
partners at the beginning of its arrangements and thus there are no delivered items separate from the research and development services provided. As such, upfront payments are recorded as deferred
revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance that is consistent with the terms of the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-45</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=192,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=554666,FOLIO='F-45',FILE='DISK131:[13ZDG1.13ZDG47201]GA47201A.;22',USER='CHE106820',CD='21-FEB-2014;07:50' -->
<A NAME="page_ga47201_1_46"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 1. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>research
and development obligations contained in the agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Amounts
related to research and development funding are generally recognized as the related services or activities are performed, in accordance with the contract terms. To the extent that agreements
specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified rates in
the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally, all of the
agreements provide for reimbursement of third-party expenses, and such reimbursable expenses are billed as revenues as incurred. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
arrangements may include contractual milestones, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events contained in
the Company's arrangements coincide with the progression of the Company's product candidates from research and development, to regulatory approval and through to commercialization. The process of
successfully developing a new product, having it approved from a regulatory perspective and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn
from its partners involve a significant degree of risk to achieve. Research and development milestones in the Company's strategic alliances may include the following types of events: completion of
pre-clinical research and development work, completion of certain development events and initiation of clinical trials. Regulatory milestones may include the following types of events: filing of
regulatory applications with the Food and Drug Administration and approval of the regulatory applications by the Food and Drug Administration. Commercialization milestones may include product launch.
The Company recognizes milestone payments in its entirety in the period in which the milestone is achieved. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Upon
commercialization, revenues are generated from product sales, royalties and profit sharing. Product sales are generally recognized as products are shipped and title and risk of loss pass to the
partner. Royalties and profit sharing are generally recognized when the Company's partners sell the product to their customers and are based on a percentage of the Company's partners' gross sales or
net profits for products subject to our agreements. Royalties and profit sharing totaled $2.0&nbsp;million and $1.9&nbsp;million for the three months ended December&nbsp;31, 2012 and 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Other
revenues consists primarily of income derived from the Company's arrangements with its partners, whereby a portion of the revenues received under these agreements relates to rental income from
embedded leases associated with these relationships, as well as revenues associated with licenses granted to a third party for intellectual property related to thin film dressings. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 2. Fair Value Measurements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
Except as noted below, the carrying values of the Company's financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the
short period of time to maturity or repayment. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-46</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=193,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=179210,FOLIO='F-46',FILE='DISK131:[13ZDG1.13ZDG47201]GA47201A.;22',USER='CHE106820',CD='21-FEB-2014;07:50' -->
<A NAME="page_ga47201_1_47"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 2. Fair Value Measurements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
Company's financial instruments that are measured at fair value on a recurring basis as of September&nbsp;30, 2013 and as of December&nbsp;31, 2013, by level within the fair value hierarchy,
are as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="34pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;I </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;II </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;III </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>560</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>560</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,367</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total financial liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="34pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="37pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="42pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of December&nbsp;31, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;I </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;II </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Level&nbsp;III </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Total </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrant liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>603</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>603</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note embedded derivative liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,338</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,338</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total financial liabilities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,941</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>6,941</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The Company's Level&nbsp;III liabilities consist of a preferred stock warrant liability (see Note&nbsp;6) and subordinated note embedded derivative liability
(Note&nbsp;4). The following table sets forth a summary of the changes in the fair value of the Company's Level&nbsp;III financial liabilities, which are measured on a recurring basis (in
thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="46pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance as of September&nbsp;30, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,927</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of preferred stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>43</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of subordinated note embedded derivative liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,029</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance as of December&nbsp;31, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,941</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The following financial instruments have carrying values which differ from their fair value as estimated by the Company based on market quotes for instruments
with similar terms and remaining maturities (Level&nbsp;III valuation technique) (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Carrying<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Difference </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,399</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>14,316</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,917</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,508</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(3,492</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>59,812</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>61,237</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,425</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-47</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=194,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=1001286,FOLIO='F-47',FILE='DISK131:[13ZDG1.13ZDG47201]GA47201A.;22',USER='CHE106820',CD='21-FEB-2014;07:50' -->
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 2. Fair Value Measurements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="49pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="50pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of December&nbsp;31, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Carrying<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Difference </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,520</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>37,520</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>9,437</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>14,604</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,167</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,445</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>16,445</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>63,402</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>68,569</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5,167</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 3. Inventories  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
Inventories consist of the following (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Raw materials</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,410</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,185</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Work in process</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,546</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,384</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Finished goods</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>667</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>675</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total inventories, cost</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,623</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,244</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less inventory reserves</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(115</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(168</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total inventories, net</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,508</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,076</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 4. Debt  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company's outstanding debt as of September&nbsp;30, 2013 and December&nbsp;31, 2013 consist of a bank line of credit, amounts outstanding under a term loan agreement classified as long-term
debt, convertible notes and a subordinated note as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Bank line of credit</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>3,873</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,501</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,520</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,399</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>9,437</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Subordinated note</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>16,445</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:18pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>63,685</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>65,903</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less current portion, consisting of bank line of credit and long-term debt</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4,330</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>2,749</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>59,355</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>63,154</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B><I> Bank Line of Credit  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company entered into a line of credit on August&nbsp;31, 2012 which provides for borrowings up to $6.0&nbsp;million, expires on
August&nbsp;31, 2014, and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all other assets of the Company. Advances
under the line of credit are based on 80% of eligible accounts receivable. The line of credit bears interest at 0.25%, plus the bank's prime rate (an effective rate of 4.25% as of September&nbsp;30,
2013 and </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-48</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=195,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=472826,FOLIO='F-48',FILE='DISK131:[13ZDG1.13ZDG47201]GA47201A.;22',USER='CHE106820',CD='21-FEB-2014;07:50' -->
<A NAME="page_ga47201_1_49"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 4. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>December&nbsp;31,
2013), and provides for a minimum monthly interest charge of $5,000. In addition, the line of credit required a $60,000 facility fee which was paid in August 2013. The line of
credit contains a minimum monthly liquidity covenant of $2.0&nbsp;million of net cash on deposit with the commercial bank. The Company was in compliance with such covenant as of September&nbsp;30,
2013 and December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Long-term Debt  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Long-term debt was as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="70pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Term loan agreement expiring June&nbsp;30, 2017. See terms of the agreement below. Less discount of $103 and $96 as of September&nbsp;30, 2013 and for the
three months ended December&nbsp;31, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,293</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,625</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $3 at an interest rate of 7% and is due
April 2015</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>124</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>117</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $6 at an interest rate of 7% and is due
November 2024</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>575</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>567</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $71 at an interest rate of 2.192% and
is due March 2014</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>421</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>211</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,413</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,520</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less current portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>457</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>248</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Long-term portion</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,956</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>37,272</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>On July&nbsp;13, 2012, the Company completed a $35.0&nbsp;million term loan agreement with a financial investment fund. In August 2012 and December 2012, the
Company drew down $29.0&nbsp;million and $6.0&nbsp;million under this agreement. The agreement requires interest to be paid quarterly at a simple annual rate of 15%, and that all outstanding
principal be repaid in four equal quarterly payments beginning September&nbsp;30, 2016. The facility also contains a provision whereby the Company can choose to defer cash payment of 3.5% on the
original outstanding principal from the first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes under the agreement. As of
September&nbsp;30, 2013 and December&nbsp;31, 2013, the Company has converted $1.2&nbsp;million and $1.6&nbsp;million of interest into additional notes (payment-in-kind notes). Amounts
outstanding under the term loan agreement are collateralized by all of the Company's assets and the agreement contains a 1% fee on all draws and provides for a prepayment penalty on the outstanding
principal if the Company chooses to repay principal prior to maturity, or upon other specified events, including a change of control. The term loan agreement provides for financial covenants for
minimum revenues and minimum liquidity, of which the Company was in compliance as of September&nbsp;30, 2013 and December&nbsp;31, 2013. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-49</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 4. Debt (Continued)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Convertible Notes  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2008 and 2009, the Company issued convertible bridge notes (the "Convertible Notes") and warrant purchase agreements to several of the existing
Series&nbsp;C stock investors, whereby the Company raised a total of $20.0&nbsp;million. As originally issued, the Convertible Notes accrued interest at 10% per year and matures on the earliest of
July&nbsp;31, 2009, the consummation of a significant sale of assets of the Company outside the normal course of business, or upon an uncured event of default. Subsequently, the maturities of the
Convertible Notes were initially extended to October&nbsp;31, 2009, after which they became due.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest has not been paid on the Convertible Notes since
inception and is therefore,
presented as long-term accrued interest. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Convertible Notes are convertible into preferred stock of the Company. Upon completion of the Company's next preferred stock equity financing, the Convertible Notes will convert automatically into
the series of preferred stock issued in that financing, at a conversion price equal to the price per share for such financing. The Convertible Notes are secured by all assets of the Company, with such
security interest being subordinated to the security interest granted by the Company to its commercial bank and the $35&nbsp;million term loan agreement. Pursuant to an intercreditor agreement the
Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Convertible Notes also provide for an amendment of the voting agreement between the Company and the majority of its stockholders, pursuant to which the major investor has the right to increase the
maximum size of the board of directors to 11 and the major investor also has the right to appoint up to 6 of the directors. As of December&nbsp;31, 2013 the major investor had not exercised either
of these rights. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
connection with the Convertible Notes, the Company also issued common stock warrants exercisable for a number of shares equal to 60% of the principal amount of the Convertible Notes, divided by the
conversion price of the Convertible Notes, which is, initially, the original issue price of the Series&nbsp;C preferred stock. The warrants are only exercisable following conversion of the
Convertible Notes into preferred stock and will be exercisable for shares of common stock of the Company. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Subordinated Note  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In 2009, the Company issued a subordinated note (the "Subordinated Note") to one of the existing Series&nbsp;C preferred stock investors raising a
total of $13.0&nbsp;million. The Subordinated Note accrues simple interest at 5% per year and had an original maturity of the earliest of March&nbsp;31, 2010, the consummation of a significant
sale of assets of the Company outside the normal course of business, or upon an uncured event of default. In connection with the closing of the term loan agreement during the year ended
September&nbsp;30, 2012, the maturity of the Subordinated Note was extended to July&nbsp;1, 2017, and, as a result, the Subordinated Note is classified as a long-term obligation as of
September&nbsp;30, 2013 and December&nbsp;31, 2013.
Interest has not been paid on the Subordinated Note since inception and is therefore, presented as long-term accrued interest. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Subordinated Note is secured by all assets of the Company, with such security interest subordinated to the security interest granted by the Company to both its commercial bank and the term loan
agreement. Pursuant to an intercreditor agreement the Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>If
the Company consummates a merger of the Company or a sale of all or substantially all of the Company's assets, or a significant asset sale prior to the full repayment of the Subordinated Note,
then, at the written </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-50</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 4. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>election
of the subordinated note holder, the holder of the Subordinated Note will be entitled to be repaid the entire outstanding balance under the Subordinated Note plus an additional amount equal
to the outstanding principal under the Subordinated Note, plus all accrued interest. The Company has determined that this feature is an embedded derivative requiring bifurcation and separate
accounting. The fair value of this embedded derivative liability was $7.4&nbsp;million and $6.3&nbsp;million as of September&nbsp;30, 2013 and December&nbsp;31, 2013. The fair value of the
embedded derivative was measured using a with and without valuation methodology. The fair value is primarily driven by the assessment of the probability and timing of scenarios which would trigger the
payment of the additional amount equal to the outstanding principal totaling $13.0&nbsp;million under the Subordinated Note. The change in fair value of was recorded to change in fair value of
Subordinated Note embedded derivative liability. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>We
determined that the fair value of the Subordinated Note embedded derivative feature had decreased by $1.0&nbsp;million during the three months ended December&nbsp;31, 2013, primarily due to the
increased likelihood of an IPO which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount which results in reducing the value of the
embedded derivative feature. Accordingly, we recorded a net decrease in fair value of Subordinated Note embedded derivative liability of $1.0&nbsp;million for the three months ended
December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
part of the recapitalization described below, in December 2013 the subordinate note was modified to provide that in the event of a qualifying IPO or equity financing, the note will automatically
convert into 34.2&nbsp;million shares of common stock or the equivalent amount of preferred stock. As this represents a substantial modification of the debt, it is accounted for as an
extinguishment. Accordingly, the book value of the debt prior to the conversion was removed from the financial statements and the fair value of the debt after the modification, including the value of
the conversion feature, of $16.5&nbsp;million was recorded. As the holder of the subordinate debt controls the majority of our equity and can appoint the majority of our board, the modification of
the debt is considered a transaction with owners. Accordingly the difference between the book value of the debt prior to the modification and the fair value of the debt after modification and was
recorded as a $3.5&nbsp;million reduction in additional paid in capital. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Recapitalization  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In December 2013, the Company entered into an amendment and conversion agreement with Essex Woodlands pursuant to which the Company and Essex
Woodlands (i)&nbsp;amended the Convertible Notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of the Company's common
stock immediately prior to the closing of an initial public offering of the Company's common stock or into 20,569,231 shares of the Company's Series&nbsp;C preferred stock immediately prior to the
first closing of a qualified equity financing that occurs prior to the closing of an initial public offering of the Company's common stock and the Convertible Notes will be terminated;
(ii)&nbsp;amended the terms of the Subordinated Note to provide that it will automatically convert either into 34,210,182 shares of the Company's common stock immediately prior to the closing of an
initial public offering of the Company's common stock or into 34,210,182 shares of a new series of the Company's preferred stock (with identical rights, preferences and privileges as the Company's
Series&nbsp;C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs prior to
the closing of an initial public offering of the Company's common stock and the Subordinated Note will be terminated; and (iii)&nbsp;requires Essex Woodlands to effect the automatic conversion of
all outstanding shares of the Company's preferred stock in connection with the completion of an initial public offering of the Company's common stock. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-51</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
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<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 4. Debt (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Simultaneously,
the Company also entered into a repurchase agreement pursuant to which the Company agreed to repurchase 10,885,884 shares of the Company's common stock for an aggregate repurchase
price of $5.2&nbsp;million from two of the Company's founders. These repurchases will occur immediately prior to the earlier of the closing of an initial public offering of the Company's common
stock and the first closing of a qualified equity financing, and these repurchases will satisfy in full all of the Company's remaining obligations under the repurchase agreements which are discussed
in Note&nbsp;7. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 5. Collaboration and Partner Arrangements  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company has recognized the following revenues from its collaboration and partner agreements during the three months ended December&nbsp;31, 2012 and 2013 (in thousands): </FONT></P>
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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="78pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="78pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three Months Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>P&amp;G</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,729</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,952</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Teva</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,421</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,703</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Actavis/Par</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,955</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>3,179</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Agile</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,315</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>365</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>204</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>269</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,624</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>10,468</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 6. Warrants  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company issued warrants to purchase shares of the Company's stock as part of several transactions from 2008 through 2013. The warrants have been recorded as either equity instruments or liability
instruments based on the terms of the warrants. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Preferred Stock Warrants  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The Company issued warrants to purchase Series&nbsp;C preferred stock, which comprise the only warrants to purchase preferred stock issued by the
Company as of December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>All
of the Series&nbsp;C preferred stock warrants are exercisable for a period of five years from issuance except certain warrants to purchase 163,522 shares of Series&nbsp;C preferred stock that
expire upon the earlier of five years and the closing of an initial public offering. The warrants are exercisable in cash or through a cashless exercise provision. Under the cashless exercise
provision, the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Series&nbsp;C preferred
stock at the time of exercise of the warrant after deducting the aggregate exercise price. In the event that all outstanding shares of the Series&nbsp;C convertible preferred stock are converted
into common stock, the warrants will be exercisable for the same number of shares of common stock. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2013 and December&nbsp;31, 2013, warrants to purchase 1,739,992 and 1,707,287 shares of Series&nbsp;C preferred stock were outstanding with a weighted average exercise
price of $0.90 per share. Of this amount, warrants to purchase 1,380,241 shares of Series&nbsp;C preferred stock contain antidilution protection. Therefore, the Company evaluated these warrants as
derivative instruments, and accordingly recorded the warrants as liabilities at fair value at the time of issuance, with the fair value then adjusted at each subsequent balance sheet date. The Company
will continue to adjust the preferred stock warrant liabilities for changes in the fair value of the warrants until the earlier of (i)&nbsp;the exercise of the </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-52</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<A NAME="page_gc47201_1_53"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B> 6. Warrants (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>warrants,
(ii)&nbsp;the conversion of the underlying preferred stock into common stock, at which time, the liability will be reclassified to stockholders' equity, and (iii)&nbsp;the expiration of
the warrants. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
fair value of the outstanding convertible preferred stock warrants containing antidilution protection were remeasured as of September&nbsp;30, 2013 and December&nbsp;31, 2013 using the
Probability-Weighted Expected Return Model. We use a number of assumptions to estimate the fair value including the likelihood of various scenarios, the expected volatility and the fair value of the
underlying stock under each scenario. These assumptions are: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="97pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="93pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of December&nbsp;31,<BR>
2013 </B></FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Remaining contractual term (in years)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>5.07&nbsp;-&nbsp;8.24</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4.82&nbsp;-&nbsp;7.99</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1.39&nbsp;-&nbsp;2.02%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1.75&nbsp;-&nbsp;2.45%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected volatility</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>68&nbsp;-&nbsp;77%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>67&nbsp;-&nbsp;72%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected dividend rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0%</FONT></TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The fair value of these warrants totaled $0.6&nbsp;million and $0.6&nbsp;million as of September&nbsp;30, 2013 and December&nbsp;31, 2013. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Common Stock Warrants  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of September&nbsp;30, 2013 and December&nbsp;31, 2013, warrants to purchase 13,075,643 shares of common stock were outstanding with a weighted
average exercise price of $0.19 per share. All of the common stock warrants are exercisable for a period of five years from issuance and the closing of an initial public offering of common stock. The
fair value of these warrants was recorded in stockholders' deficit upon issuance. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><I> Convertible Preferred Stock  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Convertible preferred stock as of September&nbsp;30, 2013 and December&nbsp;31, 2013 consists of the following (in thousands, except for share and
per share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:67%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="120%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
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<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="53pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="86pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="92pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares<BR>
Authorized </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Original<BR>
Issue Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares Issued and<BR>
Outstanding </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Aggregate<BR>
Liquidation Amount </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;A</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,114,100</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.220</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,114,066</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>490</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;B</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,602,200</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.875</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7,602,132</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,652</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;C</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,000,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>0.917</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>27,318,702</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>50,119</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance as of September&nbsp;30, 2013 and December&nbsp;31, 2013</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>65,716,300</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>57,261</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><I> Voting Rights</I></FONT><FONT SIZE=2> &#151; The Series&nbsp;A, B, and C preferred stockholders have a right to the number of votes equal to the number of shares of common stock issuable upon
conversion of the preferred stock, except as
otherwise required by law. The Series&nbsp;C stockholders have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. In
addition, all preferred stockholders, as a class, have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-53</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Dividends</I></FONT><FONT SIZE=2> &#151; The Series&nbsp;A, B, and C preferred stockholders are entitled to receive noncumulative dividends, if and when declared by the board of directors
prior and in preference to any dividend on common stock, at the rate of 8% of the original issue price. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Conversion</I></FONT><FONT SIZE=2> &#151; Each share of preferred stock may be converted, at the option of the holder, into such number of fully paid and nonassessable shares of common stock as
is determined by dividing the original issue price for the relevant series of preferred stock by the then-applicable conversion price in effect at the time of conversion. The current conversion ratio
for all outstanding shares of preferred stock is one-for-one. Each share of preferred stock will automatically convert to common stock upon the consent of holders of at least 67% of the shares of
preferred stock outstanding, or the closing of an underwritten registered public offering of shares of common stock that reflects a value of the Company not less than $3.68 per share and results in
gross proceeds of at least $50.0&nbsp;million. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Liquidation</I></FONT><FONT SIZE=2> &#151; In the event of a liquidation, dissolution, or winding up of the Company, the Series&nbsp;C preferred stockholders are entitled to a preference
payment prior to any distribution of assets or surplus funds of the Company to the Series&nbsp;A and B preferred stockholders or to the common stockholders. The liquidation preference payments to
the Series&nbsp;C preferred stockholders will be two times the original issuance price of the Series&nbsp;C preferred stock, plus any accrued but unpaid dividends. Upon completion of the
preference payment to the Series&nbsp;C preferred stockholders, the Series&nbsp;A and B preferred stockholders are entitled to share equally in preference payments until the Series&nbsp;B
preferred stockholders receive one times the original issuance price of the Series&nbsp;B preferred stock; thereafter, only the Series&nbsp;A preferred stockholders receive preference payments
until they have received a cumulative amount of two times the original issuance price of the Series&nbsp;A preferred stock. All of the foregoing preferred stock preferences must be paid prior to any
distribution of any assets or surplus funds of the Company to the common stockholders. The Company classifies the convertible preferred stock outside of stockholders' deficit and records it at maximum
liquidation value as the shares contain liquidation features that are not solely within its control. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><I> Participation</I></FONT><FONT SIZE=2> &#151; In the event of a liquidation, dissolution, or winding up of the Company, and only after all of the Series&nbsp;A, B, and C preferred stockholders
have received all of their preference payments, any remaining assets or surplus funds of the Company will be distributed ratably to the common stockholders and Series&nbsp;B preferred stockholders
as if the Series&nbsp;B preferred stock had all been converted into common, but only to the extent that Series&nbsp;B stockholders will be entitled to receive a maximum of one times the original
issuance price of the Series&nbsp;B preferred stock from such distribution. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-54</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<A NAME="page_gc47201_1_55"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Common Stock  </I></B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The Company was authorized to issue up to 115,000,000 shares of common stock as of September&nbsp;30, 2013 and December&nbsp;31, 2013 at par value
of $0.001 per share. The Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
September&nbsp;30,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>As of<BR>
December&nbsp;31,<BR>
2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances under stock option plans</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>17,996,634</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>17,964,384</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Conversion of convertible preferred stock</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances upon exercise of convertible preferred stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1,707,287</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Issuances upon exercise of common stock warrants</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>68,847,169</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>68,782,214</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><I> Repurchases of Common Stock from Founders</I></FONT><FONT SIZE=2> &#151; In connection with the Series&nbsp;C financing the Company, in accordance with specific stock repurchase agreements
approved by the board of directors, purchased from the two founders an aggregate of 2,180,313 shares of common stock at a purchase price of $0.9173 per share. The stock repurchase agreements also
provide for the Company to repurchase an additional total of 2,180,313 shares of common stock held by each of the two founders at a price of $0.9173 per share, in four separate closings, at six-month
intervals of 408,809, 408,809, 545,078, and 817,617 shares from each founder. These agreements were amended in March 2008 to suspend the Company's obligation to repurchase these shares if, in the
discretion of the Company's board of directors, any such repurchase would result in a material adverse effect on the Company's financial condition. As these shares are conditionally redeemable, they
are classified outside of stockholders' deficit. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
of September&nbsp;30, 2013 and December&nbsp;31, 2013, the Company has a remaining agreement to repurchase 1,333,939 from one founder and 2,180,313 from the other founder, but such repurchase
is contingent on
approval by the board of directors. As discussed in Note&nbsp;4, in December 2013, the Company entered into another agreement which would include the satisfaction in full of all of the Company's
remaining obligations under these repurchase agreements upon the earlier of the closing of an initial public offering of the Company's common stock and the first closing of a qualified equity
financing. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 8. Stock-Based Compensation  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><I> Equity Incentive Plan  </I></B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As of September&nbsp;30, 2013 and December&nbsp;31, 2013, the Company has two stock option plans, one sponsored by the Company, or the Corium Plan
and the stock option plan of StrataGent,&nbsp;Inc., or the StrataGent Plan. StrataGent,&nbsp;Inc. was acquired by the Company as a wholly owned subsidiary on September&nbsp;20, 2007. The
unexpired, unexercised options outstanding for those employees of StrataGent who remained Company employees after the merger was effected were assumed by the Company. Each StrataGent option became
exercisable into whole shares of Corium stock based on an agreed exchange ratio and per share exercise price such that the total value of the option grant did not change. The Company elected to make
no further grants under the StrataGent Plan; however its terms continue to govern all options issued under that plan. No additional shares available for grant were assumed by the Company, and </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-55</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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<A NAME="page_gc47201_1_56"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 8. Stock-Based Compensation (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>any
options that were returned to the pool subsequent to the merger were canceled and were not made available for future grants. This wholly owned subsidiary was dissolved during 2008. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The
Corium Plan consists of the 2002 stock option plan that expired in 2012 and the 2012 equity incentive plan which was adopted in November 2012. The exercise price of each option issued under the
Corium Plan is no less than the fair value of the Company's stock on the date of the grant as determined by the board of directors. The maximum term of the options is 10&nbsp;years and the maximum
vesting period is 4&nbsp;years. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>A
summary of activity under the Corium Plan during the three months ended December&nbsp;31, 2013 is as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="65pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="67pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="68pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Shares<BR>
Available<BR>
for Grant </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Stock<BR>
Options<BR>
Outstanding </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted<BR>
Average<BR>
Exercise Price </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Weighted&nbsp;Average<BR>
Remaining<BR>
Contractual&nbsp;Life<BR>
(Years) </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Aggregate<BR>
Intrinsic<BR>
Value </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(In thousands)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; September&nbsp;30, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,508,950</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>15,441,631</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,287</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional shares authorized</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(32,250</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,068</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(1,068</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cancelled</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance&nbsp;&#151; December&nbsp;31, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,510,018</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>15,408,313</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>0.22</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>7.37</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>2,928</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>Employee stock-based compensation expense for the three months ended December&nbsp;31, 2012 and 2013 is classified in the statements of operations as follows (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="77pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="77pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three months ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of product revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>18</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cost of contract research and development revenues</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>20</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>7</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>123</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>39</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total stock-based compensation</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>172</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>56</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>As of December&nbsp;31, 2013, there was a total of $0.6&nbsp;million of unrecognized employee compensation cost, net of estimated forfeitures, related to non-vested stock
option awards, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 2.1&nbsp;years. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 9. Product Recall Liability  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
In fiscal 2008 and fiscal 2010, Actavis issued two voluntary recalls of certain lots and strengths of Fentanyl TDS manufactured by the Company and sold and distributed by Actavis in the United States.
The Company and Actavis negotiated financial settlements for these two recalls, and the Company accrued amounts related to these settlements in fiscal 2009 and 2011. Such recall liabilities were
subsequently reduced through various mechanisms per the terms of the settlement agreements. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-56</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
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</FONT> <FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC.  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 9. Product Recall Liability (Continued)  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
In October 2012, the Company reached a revised settlement related to the First and Second Recalls which provides for a total and combined remaining liability of $5.0&nbsp;million. The revised
liability will be repaid through quarterly payments in arrears based on a percentage of the average of the total net revenues recorded by the
Company related to Fentanyl TDS. These payments will be paid to Actavis starting in July&nbsp;1, 2013 and continuing through April&nbsp;1, 2017. To the extent that the revised settlement liability
is not repaid as of April&nbsp;1, 2017, the remaining liability, if any, will be converted into the most recent form of capital stock issued by the Company in connection with a financing, at the
price per share of that financing. The revised liability does not accrue interest. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
following table summarizes the changes to the product recall liability (in thousands): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="96pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three months ended<BR>
December 31, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance at September&nbsp;30, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,832</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Payment of settlement liability</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>(280</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance at December&nbsp;31, 2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>4,552</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 10. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders  </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>
The following table sets forth the computation of the Company's basic and diluted net loss per share attributable to common stockholders during the three months ended December&nbsp;31, 2012 and 2013
(in thousands, except share and per share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="82pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three months ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,433</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,341,554</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,521,505</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.06</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.09</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2>The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stockholders for the
periods presented because including them would have been antidilutive: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="73pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three months ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2012 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Convertible preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>36,034,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock options to purchase common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>18,032,134</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>17,964,384</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock warrants</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>12,993,643</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>13,075,643</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Preferred stock warrants</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,739,992</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>1,707,287</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-57</FONT></P>

<HR NOSHADE>
<P style='font-family:arial;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=204,EFW="2218478",CP="CORIUM INTERNATIONAL INC.",DN="1",CHK=855885,FOLIO='F-57',FILE='DISK131:[13ZDG1.13ZDG47201]GE47201A.;30',USER='BKYNARD',CD=';3-MAR-2014;11:52' -->
<A NAME="page_ge47201_1_58"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 10. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders after giving effect
to the recapitalization, described in Note&nbsp;4 and the conversion of preferred stock into common stock as though the conversion had occurred at the beginning of the three months ended
December&nbsp;31, 2013 (in thousands, except share and per share data): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:arial;"></FONT></P>

<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="8pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="96pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Three&nbsp;months&nbsp;ended<BR>
December&nbsp;31, 2013 </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><B>(Unaudited)</B></FONT><BR></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(2,098</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma adjustments to reflect:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in fair value of preferred stock warrant liability</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
43</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense on convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>252</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense on subordinated notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>164</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(1,639</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>22,521,505</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma adjustments to reflect:</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-top:12pt;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Conversion of convertible preferred stock</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2><BR>
36,034,900</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Conversion of convertible notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>20,569,231</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Conversion of subordinated notes</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>34,210,182</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:20pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Repurchase of common stock from founders</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(10,885,884</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>102,449,934</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net loss per share attributable to common stockholders, basic and diluted</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>(0.02</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:arial;"><FONT SIZE=2><B> 11. Segment and Enterprise-Wide Information  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company's chief operating decision maker is its chief executive officer. The chief executive officer reviews its operating results on an aggregate basis for purposes of allocating resources and
evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or operating results for levels or components.
Accordingly, the Company has a single reporting segment and operating unit structure. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>All
of the Company's revenues are derived from partners located in the United States and all long-lived assets are located in the United States. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-58</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B><BR>
CORIUM INTERNATIONAL,&nbsp;INC. </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> Notes to the Condensed Financial Statements (Continued) </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><B> 12. Subsequent Events  </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>
The Company has evaluated subsequent events through March&nbsp;3, 2014, the date the financial statements were available to be issued. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
January 2014, the Company's board of directors and stockholders approved an amendment to the 2012 Equity Incentive Plan, whereby the number of shares reserved for issuance under the Plan was
increased by 2,750,000 shares. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
January&nbsp;2014, the Company's board of directors approved the grant of stock options, under the Company's 2012 Equity Incentive Plan, totaling 400,000 shares to the non-employee directors of
the Company. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>In
January 2014, the Compensation Committee of the board of directors approved the grant of stock options, under the Company's 2012 Equity Incentive Plan, totaling 4,318,000 shares to various
employees. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>*&nbsp;*&nbsp;*&nbsp;**&nbsp;</FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>F-59</FONT></P>

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<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><div
style="width:100%;border-top:solid #000000 3.0pt;padding:0in 0in 0in 0in;font-size:3.0pt;"></div>
<div style="width:100%;border-top:solid #000000 1.0pt;padding:0in 0in 0in 0in;font-size:4.0pt;"></div> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>
<IMG SRC="g818358.jpg" ALT="LOGO" WIDTH="310" HEIGHT="103">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=5><B>Corium International,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>Common Stock  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=3><B>

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  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=3><B>Preliminary Prospectus  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=3><B>

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 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><I>Joint Book-Running Managers  </I></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>Jefferies  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B> Leerink Partners  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><I>Co-Managers  </I></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B>Needham&nbsp;&amp; Company  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=4><B> FBR  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2014 </FONT></P>
 <p style="font-family:arial;line-height:1pt;margin-left:18pt;"><font> </FONT> <FONT SIZE=2>
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 </FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ja47201_part_ii_information_not_required_in_prospectus"> </A>
<A NAME="toc_ja47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  PART&nbsp;II    <BR>    <BR>    INFORMATION NOT REQUIRED IN PROSPECTUS    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="ja47201_item_13._other_expenses_of_issuance_and_distribution"> </A>
<A NAME="toc_ja47201_2"> </A></FONT> <FONT SIZE=2><B>  Item&nbsp;13.&nbsp;&nbsp;&nbsp;&nbsp;Other Expenses of Issuance and Distribution    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>The following table sets forth all expenses to be paid by the Registrant, other than estimated underwriting discounts and commissions, in connection
with our initial public offering. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee: </FONT></P>


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<p style="font-family:arial;"></FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:arial;"></TD>
<TD WIDTH="44pt" style="font-family:arial;"></TD>
<TD WIDTH="12pt" style="font-family:arial;"></TD>
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<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>SEC registration fee</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>6,440</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>FINRA filing fee</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>8,000</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>NASDAQ Global Market listing fee</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Printing and engraving</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Legal fees and expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounting fees and expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Blue sky fees and expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Transfer agent and registrar fees and expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Miscellaneous expenses</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:arial;"><p style="font-family:arial;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:arial;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:arial;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:arial;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
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<DL compact>
<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">*</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">To
be completed by amendment.  </FONT></DD></DL>

<P style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><A
NAME="ja47201_item_14._indemnification_of_directors_and_officers"> </A>
<A NAME="toc_ja47201_3"> </A></FONT> <FONT SIZE=2><B>  Item&nbsp;14.&nbsp;&nbsp;&nbsp;&nbsp;Indemnification of Directors and Officers    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Section&nbsp;145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to
directors and officers under certain circumstances and subject to certain limitations. The terms of Section&nbsp;145 of the Delaware General Corporation Law are sufficiently broad to permit
indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>As
permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation that will be in effect at the closing of the offering contains provisions that eliminate
the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>any breach of the director's duty of loyalty to the Registrant or its
stockholders; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>under Section&nbsp;174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>any transaction from which the director derived an improper personal
benefit. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>As
permitted by the Delaware General Corporation Law, the Registrant's restated bylaws that will be in effect at the closing of our initial public offering, provide
that:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the Registrant is required to indemnify its directors and executive officers
to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the Registrant may indemnify its other employees and agents as set forth in
the Delaware General Corporation Law; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-1</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>the rights conferred in the bylaws are not exclusive. </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>The
Registrant has entered, and intends to continue to enter, into separate indemnification agreements with its directors and executive officers to provide these directors and executive officers
additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and restated bylaws and to provide additional
procedural protections. At present, there is no pending litigation or proceeding involving a director or executive officer of the Registrant regarding which indemnification is sought. Reference is
also made to the underwriting agreement to be filed as Exhibit&nbsp;1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's restated certificate of incorporation, restated bylaws and the indemnification agreements
entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
Registrant currently carries liability insurance for its directors and officers.  </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="ja47201_item_15._recent_sales_of_unregistered_securities"> </A>
<A NAME="toc_ja47201_4"> </A></FONT> <FONT SIZE=2><B>  Item&nbsp;15.&nbsp;&nbsp;&nbsp;&nbsp;Recent Sales of Unregistered Securities    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Since November&nbsp;1, 2010, the Registrant has issued and sold the following securities:</FONT></P>

<UL>
<DL compact>
<DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>From November&nbsp;1, 2010 to March&nbsp;3, 2014, we granted stock
options to purchase an aggregate of 14,750,607 shares of common stock to employees, consultants and directors pursuant to our 2012 Equity Incentive Plan, having exercise prices of $0.28 per share. Of
these options, 40,932 shares have been issued upon exercise thereof for cash consideration in the aggregate amount of $9,005, options to purchase 6,068 shares have been cancelled without being
exercised and options to purchase 14,703,607 shares remain outstanding. </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>From August&nbsp;2012 through September&nbsp;2013 we issued warrants to
purchase an aggregate of 1,075,643 shares of common stock at $0.01 to certain lenders and sophisticated accredited investors. </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>From December&nbsp;2010 through November&nbsp;2011 we issued warrants to
purchase an aggregate of 617,133 shares of Series&nbsp;C Preferred Stock at $0.9173 and we issued warrants to purchase 54,507 shares of Series&nbsp;C Preferred Stock at $0.73384 to certain lenders
and sophisticated accredited investors. </FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-11pt;'><FONT SIZE=3>&#149;</FONT></DT><DD style="font-family:arial;"><FONT SIZE=2>In September&nbsp;2012, we amended and restated our outstanding secured
convertible promissory notes originally issued in June and November&nbsp;2008, which we refer to as our convertible notes, and issued to Essex Woodlands a new amended and restated subordinated
secured promissory note with the same aggregate principal amount, which we refer to as the subordinated note. The aggregate principal amount and accrued interest of $18.9&nbsp;million and
$15.7&nbsp;million as of September&nbsp;30, 2013 under the convertible notes and the subordinated note automatically convert into shares of our common stock immediately prior to the closing of
this offering in connection with the recapitalization described in "Related Party Transactions&nbsp;&#151; Recapitalization." </FONT></DD></DL>
</UL>

<P style="font-family:arial;"><FONT SIZE=2>Unless
otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section&nbsp;4(2) of the Securities Act (or
Regulation&nbsp;D or Regulation&nbsp;S promulgated thereunder), or Rule&nbsp;701 promulgated under Section&nbsp;3(b)&nbsp;of the Securities Act as transactions by an issuer not involving any
public offering or pursuant to benefit plans and contracts relating to compensation as provided
under Rule&nbsp;701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-2</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>in
connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.  </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="ja47201_item_16._exhibits_and_financial_statement_schedules"> </A>
<A NAME="toc_ja47201_5"> </A></FONT> <FONT SIZE=2><B>  Item&nbsp;16.&nbsp;&nbsp;&nbsp;&nbsp;Exhibits and Financial Statement Schedules    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>(a)</FONT><FONT
SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Exhibits.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The following exhibits are included herein or incorporated herein by reference: </FONT></P>

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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Exhibit<BR>
Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Description of Document </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>Form of Underwriting Agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Restated Certificate of Incorporation, as amended to date.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Restated Certificate of Incorporation to be effective in connection with the closing of this offering.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.3</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Bylaws, as currently in effect.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Restated Bylaws to be effective in connection with the closing of this offering.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>4.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Common Stock Certificate.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>4.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Investors' Rights Agreement, dated September&nbsp;20, 2007, by and among the Registrant and certain of its stockholders, as amended.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>5.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Opinion of Fenwick&nbsp;&amp; West&nbsp;LLP.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Indemnification Agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2002 Stock Option Plan and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.3</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2012 Equity Incentive Plan and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.5</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.6</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Offer Letter, accepted and agreed to on March&nbsp;14, 2008, by and between the Registrant and Peter&nbsp;D. Staple.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.7</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Offer Letter, accepted and agreed to on August&nbsp;28, 2012, by and between the Registrant and Robert&nbsp;S. Breuil.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.8</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Severance Benefits Letter, accepted and agreed to on June&nbsp;25, 2013, by and between the Registrant and Parminder Singh.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.9</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated March&nbsp;20, 2002, by and between the Registrant and Baker-Wilcox L.L.C. (predecessor to Virtu Brunswick Associates,&nbsp;LLC) as amended March&nbsp;1, 2004, March&nbsp;22, 2007, and July&nbsp;13,
2012.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.10</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated April&nbsp;5, 2004, by and between the Registrant and Firco Associates,&nbsp;L.L.C. (predecessor to Virtu Brunswick Associates,&nbsp;LLC), as amended November&nbsp;10, 2004, March&nbsp;22, 2007, and
July&nbsp;1, 2012.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Business Park Lease dated October&nbsp;13, 2006, by and between the Registrant and David&nbsp;D. Bohannon Organization, as amended November&nbsp;15, 2013.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.12</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated April&nbsp;30, 2012, by and between the Registrant and 4741 Talon Court L.L.C.</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>
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<p style="font-family:arial;"></FONT></P>

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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Exhibit<BR>
Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Description of Document </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10.13</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&#134;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>Second Amended and Restated Loan and Security Agreement dated August&nbsp;31, 2012, by and between the Registrant and Silicon Valley Bank.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.14</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Term Loan Agreement dated July&nbsp;13, 2012, by and among the Registrant and Capital Royalty Partners II&nbsp;L.P., Capital Royalty Partners&nbsp;II&nbsp;&#151; Parallel Fund "A"&nbsp;L.P. and Parallel Investment
Opportunities Partners&nbsp;II&nbsp;L.P.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.15</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Product Development, Collaboration and License Agreement, dated May&nbsp;11, 2002, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical&nbsp;Inc.).</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.16</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Manufacturing and Supply Agreement For Transdermal Fentanyl, dated November&nbsp;12, 2003, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical&nbsp;Inc.), as amended
July&nbsp;24, 2013.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.17</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Assignment and Assumption Agreement, dated November&nbsp;6, 2012, by and between Actavis South Atlantic&nbsp;LLC, and Par Pharmaceutical,&nbsp;Inc., and acknowledged and consented to by the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.18</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Amended and Restated Settlement Agreement, dated November&nbsp;6, 2012, by and between the Registrant and Actavis South Atlantic&nbsp;LLC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.19</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, License and Commercialization Agreement, dated October&nbsp;18, 2006, by and between the Registrant and Agile Therapeutics,&nbsp;Inc. as modified by the Addendum to the Development, License and
Commercialization Agreement, dated January&nbsp;10, 2012, by and between the Registrant and Agile Therapeutics,&nbsp;Inc. and Addendum No.&nbsp;2 to Development, License and Commercialization Agreement, dated February&nbsp;6, 2013, by and between the
Registrant and Agile Therapeutics,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.20</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, Manufacturing and Commercialization Agreement, dated May&nbsp;5, 2004, by and between the Registrant and Barr Laboratories,&nbsp;Inc., as amended by letter agreements dated September&nbsp;8, 2009 and
June&nbsp;21, 2010.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, Manufacturing and Commercialization Agreement, dated August&nbsp;14, 2006, by and between the Registrant and Barr Laboratories,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>License Agreement, dated June&nbsp;13, 2005, by and between the Registrant and The Procter&nbsp;&amp; Gamble Company.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.23</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Restated Supply Agreement, dated June&nbsp;4, 2010, by and between the Registrant and The Procter&nbsp;&amp; Gamble Manufacturing Company as amended effective on October&nbsp;8, 2010 and February&nbsp;1,
2014.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>21.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Subsidiaries of the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>23.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Consent of Independent Registered Public Accounting Firm.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>23.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Consent of Fenwick&nbsp;&amp; West&nbsp;LLP (included in Exhibit&nbsp;5.1).</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>24.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Power of Attorney (included in page&nbsp;II-6 of the registration statement on Form&nbsp;S-1 filed herewith).</FONT></TD>
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<DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">*</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">To
be filed by amendment.
<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">&#134;</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Confidential
treatment will be requested with respect to portions of this exhibit. </FONT></DD></DL>


<P style="font-family:arial;"><FONT SIZE=2>(b)</FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Financial Statement Schedules.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All financial statement schedules are omitted because
they are not applicable or the information is included in the Registrant's financial statements or related notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-4</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:arial;"><FONT SIZE=2><A
NAME="ja47201_item_17._undertakings"> </A>
<A NAME="toc_ja47201_6"> </A></FONT> <FONT SIZE=2><B>  Item&nbsp;17.&nbsp;&nbsp;&nbsp;&nbsp;Undertakings    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>The
undersigned Registrant hereby undertakes that: </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>(1)&nbsp;&nbsp;For
purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon
Rule&nbsp;430A and contained in a form of prospectus filed by the Registrant pursuant to Rule&nbsp;424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective. </FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>(2)&nbsp;&nbsp;For
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-5</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="jc47201_signatures"> </A>
<A NAME="toc_jc47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SIGNATURES    <BR>    </B></FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Menlo Park, State of California, on this 3rd day of March, 2014. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><B> CORIUM INTERNATIONAL,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;PETER D. STAPLE<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Peter D. Staple<BR></FONT> <FONT SIZE=2><I>Chief Executive Officer</I></FONT></TD>
</TR>
</TABLE></DIV>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;"><A
NAME="jc47201_power_of_attorney"> </A>
<A NAME="toc_jc47201_2"> </A>
<BR></FONT><FONT SIZE=2><B>  POWER OF ATTORNEY    <BR>    </B></FONT></P>

<P style="font-family:arial;"><FONT SIZE=2>KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Peter&nbsp;D. Staple and
Robert&nbsp;S. Breuil, and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this
registration statement (including post-effective amendments) and any registration statement related thereto filed pursuant to Rule&nbsp;462(b) increasing the number of securities for which
registration is sought, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. </FONT></P>


<P style="font-family:arial;"><FONT SIZE=2>Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:34pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Signature

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:16pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Title


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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:17pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Date

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 </B></FONT></DIV></TH>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>/s/&nbsp;PETER D. STAPLE<BR>



<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Peter D. Staple</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>Chief Executive Officer<BR></FONT> <FONT SIZE=2><I>(Principal Executive Officer)</I></FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;ROBERT S. BREUIL<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Robert S. Breuil</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Chief Financial Officer<BR></FONT> <FONT SIZE=2><I>(Principal Financial Officer)</I></FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;TIMOTHY D. SWEEMER<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Timothy D. Sweemer</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Chief Accounting Officer<BR></FONT> <FONT SIZE=2><I>(Principal Accounting Officer)</I></FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;BHASKAR CHAUDHURI, PH.D<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Bhaskar Chaudhuri,&nbsp;Ph.D</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-6</FONT></P>

<HR NOSHADE>
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<A NAME="page_jc47201_1_7"> </A>

<P style="font-family:arial;"><FONT SIZE=2><A
HREF="#bg47201a_main_toc">Table of Contents</A></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:arial;"></FONT></P>

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<TD WIDTH="82pt" style="font-family:arial;"></TD>
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<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:34pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Signature

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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:16pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Title


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 </B></FONT></DIV></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:arial;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:17pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Date

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 </B></FONT></DIV></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>/s/&nbsp;GARY W. CLEARY, PH.D<BR>



<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Gary W. Cleary,&nbsp;Ph.D</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;RONALD EASTMAN<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Ronald Eastman</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;PHYLLIS GARDNER, M.D.<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Phyllis Gardner,&nbsp;M.D.</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;DAVID GREENWOOD<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> David Greenwood</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Executive&nbsp;Chairman, Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;JOHN KOZARICH, PH.D<BR>



<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> John Kozarich,&nbsp;Ph.D</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;ROBERT W. THOMAS<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Robert W. Thomas</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>/s/&nbsp;DANIEL G. WELCH<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Daniel G. Welch</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:arial;"><BR><FONT SIZE=2>March&nbsp;3, 2014</FONT></TD>
</TR>
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 <P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2>II-7</FONT></P>

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<P style="font-family:arial;"><FONT SIZE=2>
<A HREF="#bg47201a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:arial;"><FONT SIZE=2><A
NAME="ka47201_exhibit_index"> </A>
<A NAME="toc_ka47201_1"> </A>
<BR></FONT><FONT SIZE=2><B>  EXHIBIT INDEX    <BR>    </B></FONT></P>

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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Exhibit<BR>
Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Description of Document </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>1.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>Form of Underwriting Agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Restated Certificate of Incorporation, as amended to date.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Restated Certificate of Incorporation to be effective in connection with the closing of this offering.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.3</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Bylaws, as currently in effect.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>3.4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Restated Bylaws to be effective in connection with the closing of this offering.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>4.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Common Stock Certificate.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>4.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Investors' Rights Agreement, dated September&nbsp;20, 2007, by and among the Registrant and certain of its stockholders, as amended.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>5.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Opinion of Fenwick&nbsp;&amp; West&nbsp;LLP.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Form of Indemnification Agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2002 Stock Option Plan and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.3</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2012 Equity Incentive Plan and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.4</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.5</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.6</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Offer Letter, accepted and agreed to on March&nbsp;14, 2008, by and between the Registrant and Peter&nbsp;D. Staple.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.7</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Offer Letter, accepted and agreed to on August&nbsp;28, 2012, by and between the Registrant and Robert&nbsp;S. Breuil.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.8</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Severance Benefits Letter, accepted and agreed to on June&nbsp;25, 2013, by and between the Registrant and Parminder Singh.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.9</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated March&nbsp;20, 2002, by and between the Registrant and Baker-Wilcox L.L.C. (predecessor to Virtu Brunswick Associates,&nbsp;LLC) as amended March&nbsp;1, 2004, March&nbsp;22, 2007, and July&nbsp;13,
2012.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.10</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated April&nbsp;5, 2004, by and between the Registrant and Firco Associates,&nbsp;L.L.C. (predecessor to Virtu Brunswick Associates,&nbsp;LLC), as amended November&nbsp;10, 2004, March&nbsp;22, 2007, and
July&nbsp;1, 2012.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.11</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Business Park Lease dated October&nbsp;13, 2006, by and between the Registrant and David&nbsp;D. Bohannon Organization, as amended November&nbsp;15, 2013.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.12</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Lease dated April&nbsp;30, 2012, by and between the Registrant and 4741 Talon Court L.L.C.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.13</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Second Amended and Restated Loan and Security Agreement dated August&nbsp;31, 2012, by and between the Registrant and Silicon Valley Bank.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.14</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Term Loan Agreement dated July&nbsp;13, 2012, by and among the Registrant and Capital Royalty Partners II&nbsp;L.P., Capital Royalty Partners&nbsp;II&nbsp;&#151; Parallel Fund "A"&nbsp;L.P. and Parallel Investment
Opportunities Partners&nbsp;II&nbsp;L.P.</FONT></TD>
</TR>
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<P style="font-family:arial;"><FONT SIZE=2><A
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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Exhibit<BR>
Number </B></FONT></TH>
<TH style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:arial;border-bottom:solid #000000 1.0pt;"><FONT  style="font-size:8pt;line-height:9pt;"><B>Description of Document </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><FONT SIZE=2>10.15</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>&#134;</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2>Product Development, Collaboration and License Agreement, dated May&nbsp;11, 2002, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical,&nbsp;Inc.).</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.16</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Manufacturing and Supply Agreement For Transdermal Fentanyl, dated November&nbsp;12, 2003, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical,&nbsp;Inc.), as amended
July&nbsp;24, 2013.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.17</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Assignment and Assumption Agreement, dated November&nbsp;6, 2012, by and between Actavis South Atlantic&nbsp;LLC, and Par Pharmaceutical,&nbsp;Inc., and acknowledged and consented to by the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.18</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Amended and Restated Settlement Agreement, dated November&nbsp;6, 2012, by and between the Registrant and Actavis South Atlantic&nbsp;LLC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.19</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, License and Commercialization Agreement, dated October&nbsp;18, 2006, by and between the Registrant and Agile Therapeutics,&nbsp;Inc. as modified by the Addendum to the Development, License and
Commercialization Agreement, dated January&nbsp;10, 2012, by and between the Registrant and Agile Therapeutics,&nbsp;Inc. and Addendum No.&nbsp;2 to Development, License and Commercialization Agreement, dated February&nbsp;6, 2013, by and between the
Registrant and Agile Therapeutics,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.20</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, Manufacturing and Commercialization Agreement, dated May&nbsp;5, 2004, by and between the Registrant and Barr Laboratories,&nbsp;Inc., as amended by letter agreements dated September&nbsp;8, 2009 and
June&nbsp;21, 2010.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.21</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Development, Manufacturing and Commercialization Agreement, dated August&nbsp;14, 2006, by and between the Registrant and Barr Laboratories,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.22</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>License Agreement, dated June&nbsp;13, 2005, by and between the Registrant and The Procter&nbsp;&amp; Gamble Company.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>10.23</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&#134;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Restated Supply Agreement, dated June&nbsp;4, 2010, by and between the Registrant and The Procter&nbsp;&amp; Gamble Manufacturing Company as amended effective on October&nbsp;8, 2010 and February&nbsp;1,
2014.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>21.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Subsidiaries of the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>23.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Consent of Independent Registered Public Accounting Firm.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>23.2</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>*</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Consent of Fenwick&nbsp;&amp; West&nbsp;LLP (included in Exhibit&nbsp;5.1).</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:arial;"><BR><FONT SIZE=2>24.1</FONT></TD>
<TD style="font-family:arial;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:arial;"><BR><FONT SIZE=2>Power of Attorney (included in page&nbsp;II-6 of the registration statement on Form&nbsp;S-1 filed herewith).</FONT></TD>
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<BR><BR></FONT></DD><DT style='font-family:arial;margin-bottom:-9pt;'><FONT  style="font-size:8pt;line-height:9pt;">&#134;</FONT></DT><DD style="font-family:arial;"><FONT  style="font-size:8pt;line-height:9pt;">Confidential
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TABLE OF CONTENTS
CORIUM INTERNATIONAL, INC.
CORIUM INTERNATIONAL, INC.
Table of Contents
As filed with the Securities and Exchange Commission on March 3, 2014
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Corium International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
38-3230774
(I.R.S. Employer
Identification Number)
Corium International, Inc.
235 Constitution Drive
Menlo Park, California 94025
(650) 298-8255
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)
Peter D. Staple
Chief Executive Officer
Corium International, Inc.
235 Constitution Drive
Menlo Park, California 94025
(650) 298-8255
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Please send copies of all communications to:
Cynthia Clarfield Hess
Robert A. Freedman
Effie Toshav
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650) 988-8500
Robert S. Breuil
Chief Financial Officer
Corium International, Inc.
235 Constitution Drive
Menlo Park, California 94025
(650) 298-8255
B. Shayne Kennedy
Daniel E. Rees
Latham & Watkins LLP
650 Town Center Drive, 20
th
Floor
Costa Mesa, California 92626
(714) 540-1234
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the
following box:
o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
ý
(Do not check if a
smaller reporting company)
Smaller reporting company
o
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Proposed Maximum
Aggregate
Offering Price
(1)(2)
Amount of
Registration
Fee
Common Stock, $0.001 par value
$50,000,000
$6,440.00
(1)
Estimated
solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) of the Securities Act
of 1933, as amended.
(2)
Includes
additional shares that the underwriters have the right to purchase from the Registrant.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Table of Contents
The information in this preliminary prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and
we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH 3, 2014
PRELIMINARY PROSPECTUS
Shares
Corium International, Inc.
Common Stock
We are offering                             shares of our common stock. This is our
initial public offering of our common stock and no public market currently exists for
our common stock. We expect the initial public offering price to be between $               and
$               per share. We intend to apply to list our common stock on the NASDAQ Global Market
under the symbol "CORI."
We
are an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public reporting requirements for this
prospectus and future filings.
Investing in our common stock involves risks. See "Risk Factors" beginning on page 13 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public Offering Price
$
$
Underwriting Discounts and Commissions
Proceeds to Corium before Expenses
Delivery
of the shares of common stock is expected to be made on or
about                                         
   , 2014. We have granted the underwriters an option for a period of 30 days to purchase an additional
                             shares of our common stock. If the underwriters exercise the option in full,
total underwriting discounts and commissions payable by us will be $               , and the total proceeds
to us before expenses will be $               .
Joint Book-Running Managers
Jefferies
Leerink Partners
Co-Managers
Needham & Company
FBR
Prospectus
dated                                         
   , 2014
Table of Contents
TABLE OF CONTENTS
Page
Prospectus Summary
1
Risk Factors
13
Special Note Regarding Forward-Looking Statements
48
Industry and Market Data
48
Use of Proceeds
49
Dividend Policy
49
Capitalization
50
Dilution
53
Selected Financial Data
55
Management's Discussion and Analysis of Financial Condition and Results of
Operations
57
Business
81
Management
105
Executive Compensation
113
Related Party Transactions
122
Principal Stockholders
125
Description of Capital Stock
128
Shares Eligible for Future Sale
133
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of
Common Stock
135
Underwriting
139
Legal Matters
144
Experts
144
Where You Can Find Additional Information
144
Index to Financial Statements
F-1
Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing
prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give
you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations, and prospects
may have changed since that date.
Until                                       
     , 2014 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
For
investors outside the United States: Neither we nor the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
Table of Contents
PROSPECTUS SUMMARY
This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and
does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You
should carefully consider, among other things, our financial statements and the related notes and the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
CORIUM INTERNATIONAL, INC.
Overview
We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or
self-funded programs at earlier stages.
Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. Our partners include The Procter & Gamble Company, or P&G, Par Pharmaceutical, Inc., Teva
Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies. We have the capability to develop and manufacture our own product candidates
and are one of only a few independent companies that develops and manufactures transdermal products for other parties. We believe our proprietary manufacturing processes, know-how and custom equipment
give us a distinct competitive advantage over other pharmaceutical, consumer products and manufacturing companies.
Transdermal
drug delivery is the transport of drugs through the skin for absorption into the body. We have developed two proprietary technology platforms, Corplex and MicroCor, that we believe offer
significant competitive advantages over existing transdermal approaches. Corplex and MicroCor are designed to be adapted broadly for use in multiple drug categories and indications. We use our Corplex
technology to create advanced transdermal and transmucosal systems for small molecules that utilize less of the active ingredient while achieving the same or better therapeutic effect, that can adhere
well to either wet or dry surfaces, and that can hold additional ingredients required to aid the diffusion of low-solubility molecules through the skin without losing adhesion. Our MicroCor technology
is a biodegradable microstructure system currently in development that enables the painless and convenient delivery of biologics that otherwise must be delivered via injection. Biodegradable
microstructures integrate drug molecules and a biocompatible polymer. With slight external pressure, the microstructures penetrate the outer layers of the skin and dissolve to release the drug for
local or
systemic absorption. MicroCor is designed to expand the market for transdermal delivery of biologics, which cannot currently be delivered by other FDA-approved transdermal technologies.
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In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase 3
development by our exclusive marketing partner, Agile. AG200-15 is a combined hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, through the skin at
levels comparable to low-dose oral contraceptives, in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required
before marketing a new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional
Phase 3 clinical trial based on this guidance and intends to supplement the NDA with the results of the additional Phase 3 clinical trial. Based on market research conducted by Agile,
AG200-15 has the potential to reach a peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market
share of hormonal contraceptive prescriptions in the United States currently represents approximately $108 million of annual gross sales.
We
are developing two additional products utilizing our proprietary technologies that we plan to advance into Phase 2 trials in 2014 and 2015. MicroCor hPTH(1-34) utilizes our MicroCor
technology to deliver parathyroid hormone, a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form. Corplex Tamsulosin is a patch being developed to
deliver tamsulosin to patients with benign prostatic hyperplasia, or enlarged prostate. Tamsulosin is a drug that relaxes smooth muscle cells in the prostate and bladder neck, thereby decreasing the
blockage of urine flow that occurs with an enlarged prostate. It is designed to deliver a controlled dose over several days and to reduce side effects compared to currently marketed products. We are
not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin.
Transdermal Drug Delivery Industry
Transdermal delivery and transmucosal delivery, or delivery through mucous membranes, offer patients more convenient, non-invasive and comfortable
methods of drug delivery. The benefits of transdermal and transmucosal delivery systems over other dosage forms generally include enhancing the efficacy and reducing the side effects of a drug by
controlling the rate of delivery and absorption, avoiding the undesirable breakdown of drugs in the liver associated with gastrointestinal absorption, and improving patient compliance and long-term
adherence to therapy. According to Datamonitor, the global value of the market for systemic transdermal products, including patches, was approximately $20 billion in 2010 and is expected to
grow to approximately $30 billion by 2015. We believe this growth is driven by the increasing availability of transdermal systems for important therapeutic applications and changing disease
demographics.
Despite
the benefits of current transdermal delivery products, many key challenges prevent broader use and applicability:
•
Skin Irritation and Adhesion:
A
number of patches cause skin irritation and sensitization, often brought on by the inclusion of skin-permeating ingredients necessary to overcome the limitations of traditional patch technologies.
Some patches also experience adhesion failure resulting from excess moisture or heat while worn by the patient, for example when swimming, bathing or during other normal daily activities.
•
Safety and Drug Loading:
In order to
enable effective diffusion of sufficient amounts of drug through the skin, many transdermal delivery systems must incorporate large amounts of drug in the patch. After use, a large residual amount of
the drug remains and must be disposed of carefully, especially if the drug is potent or toxic. In some cases, only a small amount of the total drug loaded in a patch is actually delivered into the
bloodstream.
•
Delivery Limitation:
The
pharmaceutical industry has been unable to formulate certain drugs, especially biologics, for transdermal drug delivery, given the size and complexity of the molecules. These drugs generally are
delivered by injection, which causes pain and often requires administration by a medical professional. In addition, these drugs generally must be refrigerated, require biohazard disposal and present
the risk of accidental needle sticks. Many small molecules are also difficult to deliver transdermally, especially those that are not soluble in water or are unstable in the presence of air or water.
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Table of Contents
One
of the greatest opportunities in transdermal drug delivery is the ability to deliver biologics including vaccines, peptides and proteins, without the use of an injection. A number of companies
have attempted to develop technologies to address this challenge, but many have experienced commercial and development failures due to the formulation, scale-up and manufacturing complexities. Some of
these systems have relied upon large, complex and costly devices, usually with external power sources, which adversely impact their usability and reproducibility.
Our Solution
We are developing and commercializing advanced transdermal drug delivery products that are intended to expand the number and types of drugs that can
be delivered transdermally. We believe our technologies can be applied to improve the therapeutic value of many drugs by controlling the levels of drug delivered over a longer period time. They are
also designed to eliminate the need for injections of certain drugs and to improve adhesion and skin irritation profiles. Our technologies also allow us to create cost-effective products, especially
by eliminating the need for complex devices and refrigeration throughout the supply chain. Our two proprietary platforms, Corplex and MicroCor, separately address some of the primary shortcomings of
traditional transdermal drug delivery. We believe our track record within the industry demonstrates our ability to develop commercially successful products.
Corplex Technology
Corplex is a novel technology incorporating combinations of materials that utilize the properties of both traditional pressure-sensitive adhesives, or
PSAs, as well as bioadhesives, to enable the transdermal delivery of small molecules. Pressure-sensitive adhesives provide adhesion to dry surfaces, such as skin, and reduced or no adhesion to wet
surfaces, while bioadhesives adhere to wet surfaces, including the oral mucosa, with little or no adhesion to dry surfaces. Corplex encompasses combinations and blends of polymers to provide a range
of properties that improve adhesion in wet or dry conditions and delivery of active ingredients that may otherwise be difficult to formulate for transdermal delivery. We use our Corplex technology in
the Crest Whitestrips line of products and in our clinical stage Corplex Tamsulosin, as well as in other products in development. Additionally, we have one product utilizing Corplex technology for
which an Abbreviated New Drug Application, or ANDA, has been filed. An ANDA is a less burdensome application process that allows for an approval by the FDA of a generic drug product by demonstrating
bioequivalence to the innovator drug product containing the same active ingredient. Our Corplex transdermal delivery systems provide advanced custom solutions for small molecules and feature the
following benefits:
•
Flexibility:
Corplex is adaptable
and provides the ability to formulate adhesives to complement a drug's unique properties, enabling new drug dosage forms and delivery options.
•
Ease-of-Use:
Our Corplex systems are
designed to improve patient compliance by being easy to use, self-administered and discreet. In addition, Corplex products are suitable for long-term skin contact and are designed to be easily removed
with minimal damage to skin and without leaving a residue.
•
Compatibility:
Corplex can
incorporate liquid-based components that improve stability and diffusion of the drug without compromising adhesion.
•
Efficient and Controlled Drug
Delivery:
Because Corplex enables drugs to diffuse more easily through the skin, we can design Corplex products to require less drug to
achieve the desired therapeutic result.
•
Improved Therapeutic Profile:
By
achieving a steady dosage level, Corplex systems are designed to minimize side effects that otherwise result from peak concentrations of the drug when delivered with oral or other dosage forms.
We
believe the combination of these benefits make Corplex well-suited for the development of a variety of healthcare products that require adhesive properties, including prescription transdermal drug
products and personal care, oral care, wound care, medical device and diagnostics products.
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MicroCor Technology
MicroCor is a biodegradable microstructure patch technology that we are developing to enable transdermal delivery of biologics, in a disruptive
platform that reduces the need for needles and syringes and enables global distribution of biologics without requiring refrigeration. Because biologics cannot diffuse through the skin due to their
size, some mechanism is required to introduce these molecules beyond the outer layer of the skin, or stratum corneum, where they can be absorbed into the body. The further a delivery system penetrates
beyond the stratum corneum, the more likely it is to cause pain, bleeding and bruising. By integrating active ingredients directly into arrays of biodegradable microstructures, our MicroCor technology
is designed to penetrate only the stratum corneum to release the drug for local or systemic absorption, while eliminating the pain, bleeding and bruising that can be caused by needles and other active
delivery devices.
We
believe MicroCor will offer the following advantages over other delivery technologies in development for biologics:
•
Minimal Discomfort:
Our MicroCor
systems feature an array of microstructures that penetrate the stratum corneum to only a few hundred microns in depth, deep enough for effective delivery without causing pain, bruising or bleeding.
•
Dose Sparing:
MicroCor needles are
biodegradable and dissolve in the skin once the system is applied. In our clinical studies to date, we determined that over 90% of the drug contained in a single use of a MicroCor system was delivered
into the skin each time the system was administered. We expect our MicroCor systems to reduce drug waste and the costs associated with the excess drug that may be required in less efficient delivery
technologies.
•
Thermally Stable:
Our MicroCor
systems do not contain moisture, and therefore are designed to be room temperature stable, enabling both stockpiling and worldwide delivery without refrigeration, thereby minimizing drug or product
spoilage.
•
No Biohazard Disposal:
Because
MicroCor needles completely dissolve in the skin, no sharps remain after use. We believe this feature will allow disposal of the system in a traditional trash receptacle without risk of accidental
needle sticks or abuse associated with residual drug left in the delivery system.
•
Ease-of-Use:
MicroCor products are
designed to be self-administered, fully-integrated, single-use systems that are worn for only a few minutes. Unlike other delivery systems, MicroCor requires no additional parts, electrical power or
complex external enabling devices to effectively deliver the drug or product.
•
Cost-Effective:
In addition to the
cost savings associated with dose sparing and thermal stability, MicroCor's fundamental design and our proprietary molding process also minimize costs associated with manufacturing MicroCor systems.
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Our Products and Partners
The following table identifies the products we have developed that are marketed by our partners, products in our advanced pipeline and products
currently awaiting FDA approval.
We
currently have six marketed products. Clonidine TDS is a treatment for hypertension that we developed as a generic version of the branded drug known as Catapres TTS. Clonidine TDS was launched in
2010 and is marketed by Teva and manufactured by us exclusively for Teva. Fentanyl TDS is a treatment for management of chronic pain, including cancer-related pain, under specified conditions. We
developed this product as a generic version of the branded product known as Duragesic. Fentanyl TDS was approved in 2007 and is currently marketed by Par and manufactured by us exclusively for Par.
Crest Whitestrips are a series of four products for oral care that we co-developed with P&G. These products utilize our Corplex polymer technology and are sold under the brands Advanced Vivid,
Professional Effects, One Hour Express and Flex-Fit. We are the sole supplier of this oral care system for P&G.
There
are three products in our advanced pipeline. The Agile AG200-15 product is a combination hormonal contraceptive patch that contains the active ingredients ethinyl estradiol (an estrogen) and
levonorgestrel (a progestrin), both of which have an established history of efficacy and safety in currently marketed combination oral contraceptives. AG200-15 is designed to deliver both hormones at
levels comparable to low-dose oral contraceptives. By delivering these active ingredients over seven days, this product is designed to promote enhanced compliance by patients with a convenient,
easy-to-use format. If approved, the patch will be applied once weekly for three weeks, followed by a week without a patch. Agile designed AG200-15, we performed the
process development and manufacturing, and we are currently working with Agile to prepare for an additional Phase 3 clinical trial.
MicroCor
hPTH(1-34) is a transdermal system designed to use our MicroCor technology to provide simplified delivery of parathyroid hormone, the active ingredient of Forteo, an injectable product for
the treatment of severe osteoporosis. With a simple one-step application process, short wear time and a favorable pharmacokinetic profile, MicroCor hPTH(1-34) represents, if approved, an opportunity
to effectively deliver an improved anabolic therapy and increase patient compliance in the osteoporosis market. We believe MicroCor hPTH(1-34) is the only integrated, single step application PTH
transdermal product currently in clinical development. We have self-funded this program since inception, and are planning to advance it into Phase 2 clinical trials with proceeds from this
offering. We expect to partner with a company active in bone health, women's health or endocrinology to distribute and sell the product, if approved.
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Corplex
Tamsulosin is a transdermal patch designed to use our Corplex technology to provide controlled delivery of tamsulosin, the active ingredient in the leading once-daily capsule product for
treatment of benign prostatic hyperplasia, or BPH, marketed under the brand name Flomax. By providing a controlled and relatively steady level of drug over an extended time, Corplex Tamsulosin is
intended to alleviate the side effects associated with peak blood concentrations of the drug in its current oral formulation and to provide a consistent level of efficacy. Our completed Phase 1
pharmacokinetic study in healthy subjects demonstrated that Corplex Tamsulosin enabled delivery of the drug at blood concentration levels equivalent to the effective levels provided with the oral
dosage form, but with an extended and controlled release profile. If successfully commercialized, Corplex Tamsulosin could be the only patch available for tamsulosin. We have self-funded this program
since inception, and are planning to advance it into Phase 2 clinical studies with proceeds from this offering in the first half of 2015. We expect to partner this product with a company with
marketing experience and capability in the urology field.
Moreover,
we have two products currently pending FDA approval. We have developed a three-day generic transdermal product for the prevention of nausea and vomiting associated with motion sickness with
Teva, and the ANDA is currently pending with the FDA. We have completed all of the development, scale-up and clinical activities for submission of the ANDA and expect this product to launch in 2014,
if approved. In addition, we have developed a three-to-four-day generic transdermal product for treatment of a urologic condition with Teva, and the ANDA is currently pending with the FDA. We have
completed all of the required development, scale-up
and clinical activities for submission of the ANDA and expect this product to launch in 2015, if approved, pursuant to the terms of a patent settlement agreement between Teva and Actavis.
Our Strategy
We believe our balanced portfolio strategy enables us to capitalize on our proven strengths and technological advantages while diversifying risk and
limiting our financial exposure. The key components of our strategy are to:
•
Expand our existing revenue base by
commercializing our advanced pipeline.
We intend to work with our existing partners to gain regulatory approval and commercially launch
the AG200-15 contraceptive patch with Agile and a motion sickness patch and a urology patch with Teva. We also plan to develop, launch and manufacture new oral care products and certain other new
products outside of oral care, through our partnership with P&G.
•
Advance the development of proprietary products
already in development.
We plan to advance the development of MicroCor hPTH(1-34) and Corplex Tamsulosin, and selectively work with new
partners to advance certain products in our earlier stage pipeline. We intend to focus primarily on products that incorporate FDA-approved drugs, thereby allowing us to take advantage of the 505(b)(2)
regulatory pathway.
•
Enter into co-development and commercialization
agreements with new and existing partners for new products.
We are actively evaluating potential new product candidates that leverage our
proprietary technologies. Additionally, we plan to transition our MicroCor technology feasibility programs with leading pharmaceutical partners into co-development partnerships to develop and
commercialize transdermal system-based vaccines and proprietary biologic products.
•
Expand our MicroCor manufacturing
capabilities.
We intend to further develop MicroCor manufacturing capabilities to commercial scale, enabling late-stage development,
launch and commercial production of multiple new high-margin biologic products.
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•
Further leverage our core competencies and
proprietary technologies.
We intend to apply our technologies to create and develop a portfolio of new transdermal products in areas of
significant unmet need — in particular, chronic, degenerative and progressive conditions affecting the brain and central nervous system, such as Alzheimer's and Parkinson's
diseases. We are focusing our self-funded new product efforts on products that we could commercialize with a relatively small specialty sales force.
Risks Related to Our Business
Our ability to implement our business strategy is subject to numerous risks and uncertainties, some of which are inherent in our business of
developing, manufacturing and commercializing pharmaceutical products. You should carefully consider all of the information set forth in this prospectus and, in particular, the information under the
heading "Risk Factors," prior to making an investment in our common stock. These risks include, among others, the following:
•
We have limited operating revenues, a history of operational losses and an
accumulated deficit of $94.5 million as of December 31, 2013, and we may not achieve or sustain profitability;
•
We are dependent on the commercial success of our Clonidine TDS,
Fentanyl
TDS and Crest Whitestrips, and although we are generating revenues from sales of our products, we expect a decline in revenues generated by our Clonidine TDS and Fentanyl TDS products;
•
We depend on a few partners for a significant amount of our revenues; in
fiscal 2013 and the three months ended December 31, 2013, three of our partners accounted for 90% and 94% of our total revenues, respectively;
•
We have had significant and increasing
operating expenses and may require
additional funding;
•
We or our partners may choose not to continue developing or commercialize a
product or product candidate at any time during development or after approval, which would reduce or eliminate our potential return on investment for that product or product candidate;
•
Our near-term product revenue growth heavily relies on the success of the
AG200-15 contraceptive patch, which has not yet been approved by the FDA, and for which the FDA has issued a complete response letter identifying certain issues to be addressed before approval can be
granted;
•
We may not be able to obtain and enforce patent rights or other intellectual
property rights that cover our drug delivery systems and technologies with sufficient breadth;
•
We are dependent on numerous third parties in our supply chain for the
commercial supply of our products;
•
Our current and future products will be subject to ongoing and continued
regulatory review, which may result in significant expense and limit the commercialization of such products; for example, the FDA has inspected our manufacturing facilities multiple times over the
last five years and has issued five Forms 483 that describe deficiencies in our manufacturing and quality systems, and we have made significant investments in addressing these issues;
•
We may encounter manufacturing failures that could impede or delay
commercial production of our products or product candidates, or the preclinical and clinical development or regulatory approval of our product candidates;
•
We face product liability
exposure, and if successful claims are brought
against us, we may incur substantial liability if our insurance coverage for those claims is inadequate; to date we have settled 18 product liability claims, and we currently have one suit pending;
•
We have been subject to product recalls in the past, including recalls of
Fentanyl TDS in 2008 and 2010, and may be subject to additional product recalls in the future;
•
We face intense competition, in both our delivery systems and products,
including from generic drug products;
•
If we or our partners are unable to achieve and maintain adequate levels of
coverage and reimbursement for our products, or any future products we may seek to commercialize, their commercial success may be severely hindered;
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•
The report of our independent registered public accounting firm on our 2013
financial statements contains a going concern modification, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern; and
•
Our principal stockholder has the ability to control our business, which may
be disadvantageous.
Our Corporate Information
We were incorporated in Michigan in 1995 as Corium Corporation and in 1996 as Converting Systems, Inc. In 2002, these companies were merged and
re-named Corium International, Inc. and our place of incorporation changed to Delaware. Our principal executive offices are located at 235 Constitution Drive, Menlo Park, CA 94025, and our
telephone number is (650) 298-8255. We have research and development operations and corporate offices in Menlo Park, California and pilot-scale and commercial-scale manufacturing facilities in
Grand Rapids, Michigan. Our website address is www.coriumgroup.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not
rely on any such information in deciding whether to purchase our common stock. We have included our website address in this prospectus solely as an inactive textual reference.
Unless
the context indicates otherwise, as used in this prospectus, the terms "Corium," "we," "us" and "our" refer to Corium International, Inc., a Delaware corporation. We registered the
trademarks "Corplex" and "MicroCor" in the United States, European Union, Canada, Australia and Japan as well as the Russian Federation and Madrid Protocol. The "Corium" logo and certain product names
contained in this prospectus are our common law trademarks. This prospectus also includes references to trade names, trademarks and service marks of other entities, and those trade names, trademarks
and service marks are the property of their respective owners. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or
endorsement or sponsorship of us by, these other companies.
Our
fiscal year ends on September 30. Throughout this prospectus, references to "fiscal" refer to the years ended September 30.
Emerging Growth Company
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until
the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenues of at
least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded
$700.0 million as of the prior June 30
th
, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year
period. We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the "JOBS Act" and references to "emerging growth company" shall have the meaning associated with it in the
JOBS Act.
As
an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions
include:
•
only two years of audited financial statements in addition to any required
unaudited interim financial statements with correspondingly reduced "Management's Discussion and Analysis of Financial Conditions and Results of Operations" disclosure;
•
reduced
disclosure about our executive compensation arrangements;
•
no requirement that we hold non-binding advisory votes on executive
compensation or golden parachute arrangements; and
•
exemption from the auditor attestation requirement in the assessment of our
internal control over financial reporting.
We
have taken advantage of some of these reduced burdens, and thus the information we provide stockholders may be different from what you might receive from other public companies in which you hold
shares.
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THE OFFERING
Common stock offered by us
shares
Common stock to be outstanding after our initial public offering
shares
Option to purchase additional shares of common stock offered by us
shares
Use of proceeds
We expect that our net proceeds from the sale of the common stock that we are offering will be approximately
$                million, assuming an initial public offering price of $               per
share, which is the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purpose of this offering is to create a public market for our common stock. We intend to use the
net proceeds to us from our initial public offering for Phase 2 clinical trials for MicroCor hPTH(1-34) and Corplex Tamsulosin; scale up of production capability for our MicroCor products; formulation and development of our proprietary Corplex
products; advancement of our MicroCor technology; the repurchase of shares of common stock pursuant to the recapitalization described below; and working capital and other general corporate purposes. See "Use of Proceeds."
Risk Factors
See "Risk Factors" beginning on page 13 for a discussion of risks you should consider before deciding to
invest in our common stock.
Proposed NASDAQ Global Market symbol
"CORI"
The number of shares of common stock to be outstanding after our initial public offering is based
on                           shares of our common stock outstanding as of
December 31, 2013. This number assumes (i) the conversion of all outstanding shares of our convertible preferred stock, (ii) the automatic net exercise of certain warrants based
on an assumed initial public offering price of $               per share, the midpoint of the range set forth on the cover of this prospectus, and (iii) the
recapitalization, as discussed in
greater detail below, and excludes:
•
15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December 31, 2013, with a weighted-average exercise price of $0.22 per share;
•
4,718,000 shares of common stock issuable upon the exercise of options
granted between January 1, 2014 and March 3, 2014, with an exercise price of $0.41 per share;
•
1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December 31, 2013, with an exercise price of $0.92 per share, that do not expire upon the completion of this offering;
•
82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December 31, 2013, with an exercise price of $0.01 per share, that do not expire upon the completion of this offering;
9
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•
shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering;
•
shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and
•
542,018 shares of common stock available for future issuance as of
March 3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering.
Unless
expressly indicated or the context requires otherwise, all information in this prospectus assumes:
•
a               -for-               reverse
stock split of our outstanding
capital stock that was effected on                             , 2014;
•
the conversion of all outstanding shares of our convertible preferred stock
into an aggregate of 36,034,900 shares of common stock immediately prior to the closing of this offering;
•
the recapitalization as discussed in greater detail below;
•
the conversion of warrants to purchase shares of our convertible preferred
stock that do not expire at the closing of this offering into warrants to purchase an aggregate of               shares of common stock effective immediately prior to the
closing of this offering;
•
the automatic net exercise of warrants to purchase an aggregate of
               shares of common stock effective immediately prior to the closing of this offering, which is based on an assumed initial public offering price of
$               per share, the
midpoint of the range set forth on the cover of this prospectus;
•
no exercise by the underwriters of their right to purchase up to an
additional               shares of common stock; and
•
the filing of our restated certificate of incorporation and the
effectiveness of our restated bylaws in connection with our initial public offering.
Recapitalization
Prior to the completion of this offering, as of September 30, 2013, we had outstanding certain convertible notes with principal and accrued
interest of approximately $18.9 million and a subordinated note with principal and accrued interest of $15.7 million, most of which are held by Essex Woodlands, our largest stockholder.
In December 2013, we and Essex Woodlands entered into an agreement that (i) amended the convertible notes to provide that they will automatically convert either into 20,569,231 shares of
our common stock immediately prior to the closing of this offering or into 20,569,231 shares of our Series C preferred stock immediately prior to the first closing of a qualified equity
financing that occurs prior to the closing of this offering and the convertible notes will be terminated; (ii) amended the subordinated note to provide that it will automatically convert either
into 34,210,182 shares of our common stock immediately prior to the closing of this offering or into 34,210,182 a new series of our preferred stock (with identical rights, preferences and privileges
as our Series C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs
prior to the closing of this offering and the subordinated note will be terminated; and (iii) requires Essex Woodlands to effect the automatic conversion of all outstanding shares of our
preferred stock in connection with the completion of this offering.
Simultaneously,
we also entered into a repurchase agreement pursuant to which we agreed to repurchase 10,885,884 shares of our common stock for an aggregate repurchase price of $5.2 million
from our founders. These repurchases will occur immediately prior to earlier of the consummation of this offering and the first closing of a qualified equity financing.
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SUMMARY FINANCIAL DATA
The following tables summarize our historical financial data. We have derived the summary statement of operations data for fiscal 2012 and 2013 from
our audited financial statements and related notes included elsewhere in this prospectus. We derived the summary statements of operations data for the three months ended December 31, 2012 and
2013 and the summary balance sheet data as of December 31, 2013 from our unaudited interim condensed financial statements and related notes included elsewhere in this prospectus. Our unaudited
interim condensed financial statements were prepared on the same basis as our audited financial statements and include, in our opinion, all normal recurring adjustments that we consider necessary for
a fair presentation of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The
following summary financial data should be read in conjunction with the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.
Year Ended September 30,
Three Months Ended
December 31,
2012
2013
2012
2013
(In thousands, except share and per share data)
Statement of Operations Data:
Revenues:
Product revenues
$
35,716
$
38,704
$
9,972
$
8,100
Contract research and development revenues
6,838
10,750
2,588
2,064
Other revenues
306
816
64
304
Total revenues
42,860
50,270
12,624
10,468
Costs and operating expenses:
Cost of product revenues
24,360
24,828
6,233
5,229
Cost of contract research and development revenues
10,244
11,856
3,122
3,537
Research and development expenses
3,966
5,496
1,052
861
General and administrative expenses
4,645
6,525
1,792
1,810
Amortization of intangible assets
512
541
131
130
Gain on disposal and sale and leaseback of equipment
(57
)
(177
)
(43
)
(37
)
Total costs and operating expenses
43,670
49,069
12,287
11,530
Income (loss) from operations
(810
)
1,201
337
(1,062
)
Interest income
4
9
3
2
Interest expense
(5,247
)
(7,705
)
(1,773
)
(2,024
)
Change in fair value of preferred stock warrant liability
21
(14
)
—
(43
)
Change in fair value of subordinated note embedded derivative liability
—
(7,367
)
—
1,029
Other income
582
—
—
—
Loss before income taxes
(5,450
)
(13,876
)
(1,433
)
(2,098
)
Income tax benefit (expense)
7
(1
)
—
—
Net loss and comprehensive loss
$
(5,443
)
$
(13,877
)
$
(1,433
)
$
(2,098
)
Net loss attributable to common stockholders, basic and diluted
(1)
$
(5,443
)
$
(13,877
)
$
(1,433
)
$
(2,098
)
Net loss per share attributable to common stockholders, basic and diluted
(1)
$
(0.24
)
$
(0.62
)
$
(0.06
)
$
(0.09
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
(1)
22,227,342
22,452,114
22,341,554
22,521,505
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
(1)
:
$
$
Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
(1)
:
(1)
See
Note 14 to our annual audited financial statements and Note 10 to our unaudited interim condensed financial statements for an
explanation of the method used to calculate basic and diluted net loss and pro forma net loss per share attributable to common stockholders and the weighted average number of shares used in the
computation of the per share amounts.
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As of December 31, 2013
Actual
Pro Forma
(1)
Pro Forma as
Adjusted
(2)(3)
(In thousands)
Balance Sheet Data:
Cash and cash equivalents
$
7,416
$
$
Working capital
5,958
Total assets
39,484
Preferred stock warrant liability
603
Subordinated note embedded derivative liability
6,338
Deferred contract revenues, current and long-term portions
5,976
Debt, current and long-term portions
65,903
Recall liability, current and long-term portions
4,552
Convertible preferred stock
57,261
Redeemable common stock
3,224
Total stockholders' equity (deficit)
(124,620
)
(1)
Gives
effect to the following items that will occur immediately prior to the closing of this offering: (i) the automatic conversion of
all outstanding shares of our convertible preferred stock into common stock, (ii) the related reclassification of the preferred stock warrant liability to additional paid-in capital upon the
conversion of the shares of convertible preferred stock underlying the warrants that make up the liability, (iii) the conversion of our outstanding convertible and subordinated notes into
54,779,413 shares of common stock and the related reclassification of the subordinated note embedded derivative liability to additional paid-in capital, (iv) the repurchase of 10,885,884 shares
from our founders and the related reclassification of our redeemable common stock to additional paid-in capital and (v) the issuance
of                             shares of common stock upon the automatic
net exercise of certain outstanding warrants based on the assumed initial offering price of $               per share, the midpoint of the price range on the cover page this
prospectus.
(2)
Gives
effect to (i) the pro forma adjustments set forth above and (ii) the issuance and sale by us
of                             shares of
common stock in this offering, at an assumed initial public offering price of $               per share, the midpoint of the price range on the cover page of this prospectus,
after deducting
estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)
A
$1.00 increase (decrease) in the assumed initial public offering price of $               per share, the midpoint of the price range
reflected on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders' equity (deficit) by
approximately $           million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated
underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease), cash and cash equivalents, working
capital, total assets and total stockholders' equity (deficit) by approximately $                million, assuming the assumed initial public offering price remains the
same and after deducting
the underwriting discounts and commissions.
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well
as the other information in this prospectus, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations,"
before deciding whether to invest in shares of our common stock. The occurrence of any of the events or developments described in the following risk factors could have a material adverse effect on our
business, financial condition, results of operations and prospects. In such an event, the trading price of our common stock could decline, and you may lose all or part of your
investment.
Risks Related to Our Business and Industry
We have limited operating revenues and a history of operational losses and may not achieve or sustain profitability.
We have incurred significant operating and net losses since our inception. For fiscal 2013, we recorded net revenues of $50.3 million and net
loss of $13.9 million. For fiscal 2012, we recorded net revenues of $42.9 million and net loss of $5.4 million. In the three months ended December 31, 2013, we recorded net
revenues of $10.5 million and net loss of $2.1 million. As of December 31, 2013, we had an accumulated deficit of $94.5 million. We expect to continue to incur net
operating losses for at least the next several years as we seek to advance our products through clinical development and regulatory approval, prepare for and, if approved, proceed to further
commercialization, and expand our operations. Our ability to generate sufficient revenues from our existing products or from any of our product candidates in development, and to transition to
profitability and generate consistent positive cash flow is uncertain, and we may continue to incur losses and negative cash flow and may never transition to profitability or positive cash flow. In
particular, we expect our operating expenses to continue to increase in the near-term as we expand our operations and transition to operating as a public company, and may not be able to generate
sufficient revenues to offset this anticipated increase in expenses.
We are dependent on the commercial success of our Clonidine TDS, Fentanyl TDS and Crest Advance Seal Whitestrips, and although we are generating revenues from sales of our
products, we expect a decline in revenues generated by our Clonidine TDS and Fentanyl TDS products.
We anticipate that, in the near term, our ability to become profitable will depend upon the commercial success of the products marketed by our
partners. To date, we have generated limited revenues from sales of these products, and in addition, we have incurred liability in association with product recalls of Fentanyl TDS. Our Fentanyl TDS
product revenues in fiscal 2013 were $15.6 million. Our Fentanyl TDS marketing partner, Par, has provided us with forecasted demand that indicates we should expect revenues from Fentanyl TDS to
decline significantly in fiscal 2014. We are also experiencing increased competition in that market, including a new product that is manufactured by one of two suppliers of the fentanyl active
pharmaceutical ingredient, or API. In addition, Fentanyl TDS relies on a reservoir patch design instead of a matrix patch design. Although both reservoir and matrix patches have been subject to safety
concerns and recalls in the past, our current competitors, most of whom use a matrix patch, may raise questions about the design and safety of a reservoir patch and the FDA may decide that the current
reservoir patch design is a less safe design and may require the use of matrix patch technology instead. This would result in a more substantial decrease in our revenues and harm our operating
results. Our product revenues from Clonidine TDS in fiscal 2013 were $13.2 million, significantly higher than historic levels, primarily as a result of Teva's increased market share resulting
from a major competitor's diminished ability to supply its product for seven months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be lower than they were
during fiscal 2013, and more consistent with the amount of product revenues in fiscal 2012, as this competitor has resumed supply at historic levels.
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In
addition to the risks discussed elsewhere in this section, our ability to continue to generate revenues from our commercialized products will depend on a number of factors, including, but not
limited to:
•
achievement of broad market acceptance and coverage by third-party payors
for our products;
•
the effectiveness of our partners' efforts in marketing and selling our
products;
•
our ability to successfully manufacture commercial quantities of our
products at acceptable cost levels and in compliance with regulatory requirements;
•
our ability to maintain a cost-efficient organization and, to the extent we
seek to do so, to partner successfully with additional third parties;
•
our ability to expand and maintain intellectual property protection for our
products successfully;
•
the efficacy and safety of our products; and
•
our ability to comply with regulatory requirements, which are subject to
change.
Because
of the numerous risks and uncertainties associated with our commercialization efforts, including our reliance on our partners for the marketing and distribution of our products, and other
factors, we are unable to predict the extent to which we will continue to generate revenues from our products or the timing for when or the extent to which we will become profitable. Even if we do
achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.
We depend on a few partners for a significant amount of our revenues, and if we lose any of our significant partners, our business could be harmed.
The majority of our revenues come from only a few partners. For fiscal 2013, three partners, P&G, Teva and Par, individually comprised approximately
23%, 33%, and 33%, respectively, of our total revenues. In the three months ended December 31, 2013, three partners, P&G, Teva and Par, individually comprised approximately 28%, 35%, and 31%,
respectively, of our total revenues. We expect that revenues from a limited number of partners will continue to account for a large portion of our revenues in the future. The loss by us of any of
these partners or a material reduction in their purchases could harm our business, results of operations, financial condition and prospects. In addition, if any of these partners were to fail to pay
us in a timely manner, it could harm our cash flow.
We or our partners may choose not to continue developing or commercialize a product or product candidate at any time during development or after approval, which would reduce
or eliminate our potential return on investment for that product or product candidate.
We currently have six products on the market, two of which are drugs approved under Abbreviated New Drug Applications, or ANDAs, and four consumer
products. In addition, three drug product candidates that we have developed in partnership with other companies are the subject of pending applications for approval by the FDA and we have four
self-funded drug product candidates in early stages of research and development.
At
any time, we or our partners may decide to discontinue the development of a marketed product or drug product candidate or not to continue commercializing a marketed product or a drug product
candidate for a variety of reasons, including the appearance of new technologies that make our product obsolete, the position of our partner in the market, competition from a competing product, or
changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and
we will have missed the opportunity to have allocated those resources to potentially more productive uses. If one of our partners terminates a development program or ceases to market an approved or
commercial product, we will not receive any future milestone payments or royalties relating to that program or product under our partnership agreement with that party.
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Our near-term product revenue growth heavily relies on the success of the AG200-15 contraceptive patch.
The near-term growth of our product revenues heavily relies on the Agile AG200-15 transdermal contraceptive patch reaching the market in 2016. Our
collaboration partner Agile has conducted Phase 3 clinical studies and filed an NDA with the FDA for AG200-15 in April 2012. The FDA issued a "Complete Response Letter" in February 2013,
identifying certain issues, including a request for additional clinical data, which must be addressed before approval can be granted. Accordingly, Agile intends to conduct an additional Phase 3
clinical trial, which it expects will not be completed before late 2015. We cannot assure you that Agile will be able to complete an additional clinical trial in a timely manner, or at all, and
ultimately obtain regulatory approval for the AG200-15 product, which would limit our near-term growth prospects, and would create uncertainty around the value and usefulness of our AG200-15
manufacturing facility and equipment.
Since
2003, we have devoted substantial resources to the development of the AG200-15 contraceptive patch in collaboration with Agile. The success of the AG200-15 product is a key component of our
business growth over the next few years and we have projected we will receive revenues from sales of this product beginning in 2016. The AG200-15 product requires a process step that we have not yet
incorporated into commercial production, which involves the laser-etching of label information on each patch. In addition to requiring an additional Phase 3 clinical study, the FDA has
requested information relating to this laser-etching process to demonstrate that it does not adversely affect the performance of the patch. If this product is not approved and launched by mid-2016, or
at all, we will not realize our anticipated revenue growth for 2016. In addition, one of our three buildings in our manufacturing facility in Grand Rapids, Michigan has been built out for the
anticipated commercial production of AG200-15. Although some of the equipment used in that building may be repurposed for other uses with Agile's permission, it would be expensive and time consuming
to do so. If AG200-15 is not approved, our business and financial prospects will be significantly harmed.
We are dependent on numerous third parties in our supply chain for the commercial supply of our products, and if we fail to maintain our supply relationships with these
third parties, develop new relationships with other third parties or suffer disruptions in supply, we may be unable to continue to commercialize our products or to develop our product candidates.
We rely on a number of third parties for the supply of active ingredients and other raw materials for our products and the clinical supply of our
product candidates. Our ability to commercially supply our products and to develop our product candidates depends, in part, on our ability to obtain successfully the APIs used in the products, in
accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. If we fail to develop and maintain supply relationships with these third parties, we
may be unable to continue to commercialize our products, or develop any other product candidates or our MicroCor systems.
We
also rely on certain third parties as the current sole source of the materials they supply. Although many of these materials are produced in more than one location or are available from another
supplier, if any of these materials becomes unavailable to us for any reason, we likely would incur added costs and delays in identifying or qualifying replacement materials and there can be no
assurance that replacements would be available to us on acceptable terms, or at all. In certain cases we may be required to get regulatory approval to use alternative suppliers, and this process of
approval could delay production of our products or development of product candidates indefinitely.
If
our third-party suppliers fail to deliver the required commercial quantities of sub-components and starting materials, on a timely basis and at commercially reasonable prices, and we are unable to
find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality, and on a timely basis, the continued commercialization
of our products and the development of our product candidates would be impeded, delayed, limited or prevented, which could harm our business, results of operations, financial condition and prospects.
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We face intense competition, in both our delivery systems and products, including from generic drug products, and if our competitors market or develop alternative treatments
that are approved more quickly or marketed more effectively than our product candidates or are demonstrated to be safer or more effective than our products, our commercial opportunities will be
reduced or eliminated.
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary
therapeutics. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, drug delivery companies and academic and research
institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, experience in obtaining
regulatory approvals for drug product candidates and other resources than us.
Many
pharmaceutical companies are developing transdermal drug delivery systems, including 3M, Johnson & Johnson, Lohmann Therapies Systems, or LTS, Mylan, Hisamitsu, or Noven, and Actavis. In
the field of microneedle transdermal systems, other participants include 3M, Zosano, Theraject, Fujifilm and several academic institutions. For more information about the competition we face, see
"Business—Competition."
We
also face competition from third parties in obtaining allotments of fentanyl and other controlled substances under applicable annual quotas of the U.S. Drug Enforcement Administration, or DEA,
recruiting and retaining qualified personnel, establishing clinical trial sites and enrolling patients in clinical trials, and in identifying and acquiring or in-licensing new products and product
candidates.
Our
competitors may develop products that are more effective, better tolerated, subject to fewer or less severe side effects, more useful, more widely prescribed or accepted, or less costly than ours.
For each product we commercialize, sales and marketing efficiency are likely to be significant competitive factors. We do not have internal sales or marketing departments, and there can be no
assurance that we can develop or contract out these capabilities in a manner that will be cost-efficient and competitive with the sales and marketing efforts of our competitors, especially since some
or all of those competitors could expend greater economic resources than we do and/or employ third-party sales and marketing channels. Such competition can lead to reduced market share for our
products and contribute to downward pressure in our pricing, which could harm our business, results of operations, financial condition and prospects.
We face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is
inadequate.
The commercial use of our products and clinical use of our product candidates expose us to the risk of product liability claims. This risk exists even
if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA, such as the case with Fentanyl TDS and Clonidine TDS, or an applicable foreign
regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our
products or our product candidates could result in injury to a patient or even death. We have had 19 past legal proceedings related to Fentanyl TDS. Eighteen of the cases have been settled and
dismissed with prejudice, and one case is pending. The complaint for the one pending product liability suit did not state a specified amount of compensatory or exemplary damages. We have insurance
coverage up to $10 million dollars with a maximum liability of $50,000 of out-of-pocket expense for this claim. We cannot offer any assurance that we will not face other product liability suits
in the future, nor can we assure you that our insurance coverage will be sufficient to cover our liability under any such cases.
Fentanyl
TDS is an opioid pain reliever that contains fentanyl, which is a regulated "controlled substance" under the Controlled Substances Act of 1970, or CSA, and could result in harm to patients
relating to the potent effects of the opioid drug and its potential for abuse. In addition, a liability claim may be brought against us even if our products or product candidates merely appear to have
caused an injury. Product
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liability
claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products or product candidates,
among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual
outcome, product liability claims may result in:
•
the inability to commercialize our products or, if approved, our product
candidates;
•
decreased demand for our products or, if approved, product candidates;
•
impairment of our business reputation;
•
product recall or withdrawal from the market;
•
withdrawal of clinical trial participants;
•
costs of related litigation;
•
distraction of management's attention from our primary business;
•
substantial monetary awards to patients or other claimants; or
•
loss of revenues.
We
have obtained product liability insurance coverage for commercial product sales and clinical trials with a $10 million per occurrence and a $10 million annual aggregate coverage
limit. Our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance
coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us
against losses due to product liability. If we determine that it is prudent to increase our product liability coverage based on sales of our products, approval of other product candidates, or
otherwise, we may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits
based on drugs that had unanticipated side effects, including side effects that are less severe than those of our products and our product candidates. A successful product liability claim or series of
claims brought against us could cause our stock price to decline
and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, results of operations, financial condition and prospects.
We have been subject to product recalls in the past, and may be subject to additional product recalls in the future that could harm our reputation and could negatively
affect our business.
We may be subject to product recalls, withdrawals or seizures if any of the products we formulate, manufacture or sell fail to meet their
specifications or are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacture, labeling, promotion, sale, or distribution of any of our
products. In 2008 and 2010, Actavis voluntarily recalled certain lots of Fentanyl TDS, due to imperfections in our manufacturing processes, including an issue that resulted in some patches that may
have released the active ingredient at a faster rate than the rate provided in the product specifications. Any similar recall, withdrawal or seizure in the future, particularly if they involve our own
proprietary product candidates, could materially and adversely affect consumer confidence in our brands and lead to decreased demand for our products. In addition, a recall, withdrawal or seizure of
any of our products would require significant management attention, would likely result in substantial and unexpected expenditures, and would harm our business, financial condition, and results of
operations.
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If we or our partners are unable to achieve and maintain adequate levels of coverage and reimbursement for our products, or any future products we may seek to commercialize,
their commercial success may be severely hindered.
For our products that are available only by prescription, successful sales by our partners depend on the availability of adequate coverage and
reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated
with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product
acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or
subsequently become available. If our products do not demonstrate superior efficacy profiles, they may not qualify for coverage and reimbursement. Even if we obtain coverage for a given product, the
resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our products.
In
addition, the market for our products will depend significantly on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and
reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a
particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no
uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As
a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor
separately, with no assurance that coverage and adequate reimbursement will be obtained.
Further,
we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and
reimbursement for our products or any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets,
which could harm our business, results of operations, financial condition and prospects.
Our partners depend on wholesale pharmaceutical distributors for retail distribution of our products and, if our partners lose any of their significant wholesale
pharmaceutical distributors, our business could be harmed.
The majority of our partners' sales are to wholesale pharmaceutical distributors who, in turn, sell the products to pharmacies, hospitals and other
customers. The loss of any of these wholesale pharmaceutical distributors' accounts or a material reduction in their purchases could have a material adverse effect on our business, results of
operations, financial condition and prospects. In addition, these wholesale customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This
distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a
significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. We cannot assure you that
we or our partners can manage these pricing pressures or that wholesaler purchases will not fluctuate unexpectedly from period to period.
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Our results of operations may be adversely affected by demand fluctuations outside our ability to control or influence.
In general, our marketing partners are required to provide us with 12-month rolling forecasts of their demand on a quarterly basis, and are also
required to place firm purchase orders with us based on the near-term portion of those forecasts. If wholesaler or market demand for these products is lower than forecasted, our marketing partners or
their wholesaler customers may accumulate excess inventory. Additionally, our marketing partners may price our products at levels that result in lost contract sales to their wholesaler customers. If
such conditions persist, our marketing partners may sharply reduce subsequent purchase orders for a sustained period of time until such excess inventory is consumed, if ever. Significant and unplanned
reductions in our manufacturing orders have occurred in the past and our results of operations were harmed. If such reductions occur again in the future, our revenues will be negatively impacted, we
will lose our economies of scale, and our revenues may be insufficient to fully absorb our overhead costs, which could result in larger net losses. Conversely, if our marketing partners promote
significantly increased demand, we may not be able to manufacture such unplanned increases in a timely manner, especially following prolonged periods of reduced demand. As we have no control over
these factors, including our marketing partners' decisions on pricing, our purchase orders could fluctuate significantly from quarter to quarter, and the results of our operations could fluctuate
accordingly.
Our MicroCor technology has not been incorporated into a therapeutic commercial product and is still at a relatively early stage of development.
Our MicroCor technology, utilizing proprietary microneedle arrays, has not been incorporated into a therapeutic commercial product and is still at a
relatively early stage of development. We use this technology in several of our therapeutic candidates. Although we have conducted Phase 1 clinical trials for our product candidate MicroCor
hPTH(1-34), additional studies are required for this product candidate and there is no guarantee that future clinical trials will prove the technology is effective or does not have harmful side
effects. Any failures or setbacks in utilizing our MicroCor technology, including adverse effects resulting from the use of this technology in humans, could have a detrimental impact on our internal
product candidate pipeline and our ability to enter into new corporate collaborations regarding this technology, which would harm our business and financial position. As of yet, no microneedle
technology has been approved by the FDA for commercial sale.
In
addition, our MicroCor product candidates have been manufactured in small quantities for preclinical studies and early stage clinical trials. As we prepare for later stage clinical trials and
potential commercialization, we will need to take steps to increase the scale of production of our MicroCor product candidates. In order to conduct larger or late-stage scale clinical trials for a
MicroCor product candidate and supply sufficient commercial quantities of the resulting drug product and its components, if that product candidate is approved for sale, we will need to manufacture it
in larger quantities. We may not be able to increase successfully the manufacturing capacity for any of such product candidates in a timely or cost-effective manner or at all. Significant scale-up of
manufacturing may require additional processes, technologies and validation studies, which are costly, may not be successful and which the FDA must review and approve. In addition, quality issues may
arise during those
scale-up activities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during the manufacturing and packaging
process, or during shipping and storage of the finished product or active pharmaceutical ingredients. If we are unable to successfully scale-up the manufacture of any of our MicroCor product
candidates in sufficient quality and quantity, the development of that product candidate and regulatory approval or commercial launch for any resulting drug products may be delayed, or there may be a
shortage in supply, either of which could significantly harm our business.
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If we are not able to establish collaborations, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our
product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, although
we have initiated Phase I clinical trials through self-funding, we will need to find a partner or partners for the commercialization of MicroCor hPTH(1-34) if we are to effectively compete in
the target primary care market against generic medicines and drug delivery systems.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the
collaborator's resources and experience, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design
or results of clinical trials, the likelihood of approval by the FDA or other regulatory authorities, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there
is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or
technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be
restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In
addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We
may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or
delay its development program or one or more of our other development programs, delay its potential commercialization, or increase our expenditures and undertake development or commercialization
activities at our own expense. If we elect to
increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If
we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenues.
The report of our independent registered public accounting firm on our 2013 financial statements contains a going concern modification, and we will need additional financing
to execute our business plan, to fund our operations and to continue as a going concern.
Our recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern
without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements for fiscal 2013 with respect to
this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time
obtaining financing.
We
have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be
unable to continue in existence.
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We will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in executing our growth strategy and managing
any growth.
Our management, personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. As a public
company, we will need to further expand our scientific, sales and marketing, managerial, operational, financial and other resources to support our planned research, development and commercialization
activities.
Our
need to manage our operations, growth and various projects effectively requires that we:
•
continue to improve our operational, financial, management and regulatory
compliance controls and reporting systems and procedures, including the implementation of new enterprise resource management software;
•
attract and retain sufficient numbers of talented employees;
•
manage our commercialization activities for our products and product
candidates effectively and in a cost-effective manner;
•
manage our relationship with our partners related to the commercialization
of our products and product candidates;
•
manage our clinical trials effectively;
•
manage our internal manufacturing operations effectively and in a
cost-effective manner while increasing production capabilities for our current product candidates to commercial levels;
•
manage our development efforts effectively while carrying out our
contractual obligations to partners and other third parties.
In
addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to preclinical and
clinical testing. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. Because we rely on consultants for certain functions of our
business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no
assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively
expand our organization by hiring new employees and expanding our use of consultants, we might be unable to implement successfully the tasks necessary to execute effectively on our planned research,
development and commercialization activities and, accordingly, might not achieve our research, development and commercialization goals.
If we fail to attract and retain management and other key personnel, we may be unable to continue to successfully commercialize our products, develop our product candidates
or otherwise implement our business plan.
Our ability to compete in the highly competitive pharmaceuticals industry depends upon our ability to attract and retain highly qualified managerial,
scientific, medical and other personnel. We are highly dependent on our management and scientific personnel, including our President and Chief Executive Officer, Peter Staple, our Chief Financial
Officer, Robert Breuil, and our Chief Technology Officer and Vice President, Research and Development, Parminder Singh. The loss of the services of any of these individuals could impede, delay or
prevent the continuing commercialization of our products and the development of our product candidates and could negatively impact our ability to successfully implement our business plan. If we lose
the services of any of these individuals, we might not be able to find suitable replacements on a timely basis or at all, and our business could be harmed as a result. We do not maintain "key man"
insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can
be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide stock options
that vest over time. The value
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to
employees of stock options that vest over time will be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract offers
from other companies.
We
might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and
other businesses, particularly in the San Francisco Bay area where we are headquartered. We could have difficulty attracting experienced personnel to our company and may be required to expend
significant financial resources in our employee recruitment and retention efforts. We do not currently have a chief medical officer, and we cannot assure you that, if we require such a position to be
filled, we will be able to hire a qualified candidate for this position. Many of the other pharmaceutical companies with whom we compete for qualified personnel have greater financial and other
resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. If we are not able to
attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will harm our ability to implement our business strategy and achieve our business
objectives.
In
addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in
developing products or technologies that may compete with ours.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of
products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships,
joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term
expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions
entail numerous potential operational and financial risks, including:
•
exposure to unknown liabilities;
•
disruption of our business and diversion of our management's time and
attention in order to develop acquired products, product candidates or technologies;
•
incurrence of substantial debt or dilutive issuances of equity securities to
pay for acquisitions;
•
higher-than-expected acquisition and integration costs;
•
write-downs of assets or impairment charges;
•
increased amortization expenses;
•
difficulty and cost in combining the operations and personnel of any
acquired businesses with our operations and personnel;
•
impairment of relationships with key suppliers, partners or customers of any
acquired businesses due to changes in management and ownership; and
•
inability to retain key employees of any acquired businesses.
Accordingly,
there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transaction that we do complete could harm our business,
results of operations, financial condition and prospects. We have no current plan, commitment or obligation to enter into any transaction described above.
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Our business involves the use of hazardous materials and we and our third-party suppliers must comply with environmental laws and regulations, which can be expensive and
restrict how we do business.
Our research and development activities and our manufacturing activities involve the controlled storage, use and disposal of hazardous materials owned
by us, including the components of our products and product candidates and other hazardous compounds. We are subject to laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our facilities pending use and disposal and we dispose of
certain materials directly through incineration. We cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development
efforts and business operations, injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage,
handling and disposal of these materials and specified waste products. Although we believe that the safety procedures we utilize for handling and disposing of these materials generally comply with the
standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or
injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste
insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or
contamination.
Our employees, partners, independent contractors, principal investigators, consultants, vendors and contract research organizations may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, partners, independent contractors, principal investigators, consultants, vendors and contract research
organizations, or CROs, may engage in fraudulent or other illegal activity. Misconduct by these employees could include intentional, reckless and/or negligent conduct or unauthorized activity that
violates: (1) FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; (2) manufacturing standards; (3) federal and
state healthcare fraud and abuse laws and regulations; or (4) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also
involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our
reputation. We have dismissed employees in the past for improper handling and theft of our product components, and although we reported their actions to all relevant authorities, any similar incidents
or any other conduct that leads to an employee receiving an FDA debarment could result in a loss of business from our partners and severe reputational harm. In connection with the consummation of this
offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on
our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our
business and our results of operations.
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We may be adversely affected by natural disasters or other events that disrupt our business operations, and our business continuity and disaster recovery plans may not
adequately protect us from a serious disaster.
Our corporate headquarters are located in Menlo Park, California, near major earthquake and fire zones. Our manufacturing facilities are in Grand
Rapids, Michigan, where other natural disasters or similar events, like blizzards, tornadoes, fires or explosions or large-scale accidents or power outages, could severely disrupt our operations, and
have a material adverse effect on our business, results of operations, financial condition and prospects. If a disaster, power outage or other event occurred that prevented us from using all or a
significant portion of our headquarters or our Grand Rapids facility, that damaged critical infrastructure, such as enterprise financial systems or manufacturing resource planning and enterprise
quality systems, or that otherwise disrupted operations at either location, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time.
Our business and operations would suffer in the event of failures in our internal computer systems.
Despite the implementation of security measures, our internal computer systems and those of our current and any future partners, contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such
material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our manufacturing
activities, development programs and our business operations. For example, the loss of manufacturing records or clinical trial data from completed or future clinical trials could result in delays in
our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to,
our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further commercialization and development of our products and product
candidates could be delayed.
In connection with the reporting of our financial condition and results of operations, we are required to make estimates and judgments which involve uncertainties, and any
significant differences between our estimates and actual results could have an adverse impact on our financial position, results of operations and cash flows.
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. For example, we estimate annual market revenues based on patient
prescriptions using an analysis of third-party information and third-party market research data. If this third-party data underestimates or overestimates actual revenues for a given period,
adjustments to revenues may be necessary in future periods. Any significant differences between our actual results and our estimates and assumptions could negatively impact our financial position,
results of operations and cash flows.
Changes in accounting standards and their interpretations could adversely affect our operating results.
GAAP are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, or
AICPA, the SEC, and various other bodies that promulgate and interpret appropriate accounting principles. These principles and related implementation guidelines and interpretations can be highly
complex and involve subjective judgments. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of
transactions completed before the announcement of a change.
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Risks Related to Our Financial Position and Capital Requirements
We have had significant and increasing operating expenses and may require additional funding.
Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for fiscal 2013 with respect to this uncertainty. Our ability to continue as a going
concern will require us to obtain additional financing to fund our operations. We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest
thereon and our existing line of credit, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions that may prove to
be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need to raise additional capital following this offering to fund our operations and
continue to support our planned research and development and commercialization activities.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
•
the timing and amount of revenues from sales of our approved products and
any subsequently approved product candidates that are commercialized;
•
the size and cost of our commercial infrastructure;
•
the timing of FDA approval of our product candidates, if at all;
•
the timing, rate of progress and cost of any future clinical trials and
other product development activities for our product candidates that we may develop, in-license or acquire;
•
costs associated with marketing, manufacturing and distributing any
subsequently approved product candidates;
•
costs and timing of completion of any additional outsourced commercial
manufacturing supply arrangements that we may establish;
•
costs of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights associated with our products and our product candidates;
•
costs associated with prosecuting or defending any litigation that we are or
may become involved in and any damages payable by us that result from such litigation;
•
costs associated with any product recall that could occur;
•
costs of operating as a public company;
•
the effect of competing technological and market developments;
•
our ability to acquire or in-license products and product candidates,
technologies or businesses;
•
personnel, facilities and equipment requirements; and
•
the terms and timing of any additional collaborative, licensing,
co-promotion or other arrangements that we may establish.
We
cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional capital by issuing equity securities or convertible debt, your
ownership will be diluted. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional
debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.
If
we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs
or commercialization efforts, or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would
otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available. In addition, our ability to achieve profitability or to respond to competitive
pressures would be significantly limited.
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Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our
industry and prevent us from meeting our obligations.
As of December 31, 2013, the amount of our total indebtedness was approximately $65.9 million, of which we borrowed $36.7 million
pursuant to our term loan agreement with Capital Royalty, and the remainder was primarily amounts outstanding under convertible or subordinated notes. As of December 31, 2013, no principal
funds remained available to us for borrowing under the Capital Royalty term loan agreement. We are required to make significant payments to Capital Royalty beginning on September 30, 2016, as
described in more detail in "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Our
outstanding debt and related debt service obligations could have important adverse consequences to us, including:
•
heightening our vulnerability to downturns in our business or our industry
or the general economy and restricting us from making improvements or acquisitions, or exploring business opportunities;
•
requiring a significant portion of our available cash to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability to use our available cash to fund our operations, capital expenditures and future business opportunities;
•
limiting our ability to adjust to changing market conditions and placing us
at a competitive disadvantage compared to our competitors who have greater capital resources; and
•
subjecting us to financial and other restrictive covenants in our debt
instruments, the failure with which to comply could result in an event of default under the applicable debt instrument that allows the lender to demand immediate repayment of the related debt.
If
our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay product development, sales and marketing, capital and other
expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt
service obligations. This risk is increased by the fact that borrowings under our revolving credit facility with Silicon Valley Bank, or our SVB line, bear interest at a variable rates, exposing us to
the risk that the amount of cash required to pay interest will increase to the extent that market interest rates increase.
The terms of our bank line of credit and term loan agreement place restrictions on our operating and financial flexibility.
During any such times when credit remains available to us under the SVB line, or we have outstanding borrowings under the term loan agreement with
Capital Royalty, we will be required to maintain certain deposits and minimum balances as well as be prohibited from engaging in significant business transactions without the prior consent of Silicon
Valley Bank and Capital Royalty, respectively, including a change of control or the acquisition by us of another company, or engaging in new business activities which are substantially different from
our current business activities. These restrictions could significantly limit our ability to respond to changes in our business or competitive activities or take advantage of business opportunities
that may create value for our stockholders. In addition, in the event of a default under either of these arrangements, our
repayment obligations may be accelerated in full. In the event that we do not have sufficient capital to repay the amounts then owed, we may be required to renegotiate such arrangements on terms less
favorable to us, pursue strategic alternatives, including sale of our company or our significant assets, or to cease operations. Furthermore, if we raise any additional debt financing, the terms of
such additional debt could further restrict our operating and financial flexibility.
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Our ability to utilize our net operating loss carryforwards, or NOLs, and research and development income tax credit carryforwards may be limited.
As of September 30, 2013, we had NOLs for federal and state income tax purposes of $63.2 million and $12.0 million, respectively.
If not utilized, these NOLs will expire beginning in 2026 and 2017 for federal and state income purposes, respectively. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a
corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, the corporation's ability to use its pre-change
net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that, with our initial public
offering and other transactions that have occurred over the past three years, we may have triggered an "ownership change" limitation. We may also experience ownership changes in the future as a result
of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations,
which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which
could accelerate or permanently increase state taxes owed.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below
expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating
results. From time to time, we enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments, and we expect that amounts
earned from our collaboration agreements will continue to be an important source of our revenues. Accordingly, our revenues will depend on development funding and the achievement of development and
clinical milestones under our existing collaboration arrangements, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and
milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. For example, our
product revenues from Clonidine
TDS in fiscal 2013 were higher than historic levels, primarily as a result of Teva's increased market share resulting from a major competitor's diminished ability to supply its product for seven
months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be significantly lower than they were during fiscal 2013, as this competitor resumed supply at historic
levels. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors,
and recognize the cost as an expense over the employee's requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock
price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many
of which are outside of our control and may be difficult to predict, including the following:
•
the timing and cost of, and level of investment in, research and development
activities relating to our product candidates, which may change from time to time;
•
the cost of manufacturing our product candidates, which may vary depending
on FDA guidelines and requirements, and the quantity of production;
•
expenditures that we will or may incur to acquire or develop additional
product candidates and technologies;
•
the level of demand for our product candidates, should they receive
approval, which may vary significantly;
•
future accounting pronouncements or changes in our accounting policies;
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•
the timing and success or failure of clinical studies for our product
candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the United States and
elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international
economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be
adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. Additionally, although we market our products
primarily in the United States, our partners have extensive global operations, indirectly exposing us to risk.
Risks Related to Regulation of our Products and Product Candidates
Our currently marketed products, and any of our product candidates that we or our partners commercialize, will be subject to ongoing and continued regulatory review, which
may result in significant expense and limit our or our partners' ability to commercialize such products.
Even after we achieve U.S. regulatory approval for a product, or after we or our partners commercialize an FDA-regulated product that does not require
premarket approval (such as our consumer teeth whitening products), we will be subject to continued regulatory review and compliance obligations. For example, with respect to our drug products, the
FDA may impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval. A drug product's approval may contain requirements for
potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA
obligations and continued regulatory review with respect to the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping
for our products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing
Practice, or cGMP, requirements and with Good Clinical Practice, or GCP, and good laboratory practice, or GLP, requirements, which are regulations and guidelines enforced by the
FDA for all of our products in clinical and pre-clinical development, and for any clinical trials that we conduct post-approval. To the extent that a product is approved for sale in other countries,
we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
In
the case of Fentanyl TDS and any of our product candidates containing controlled substances, we will also be subject to ongoing DEA regulatory obligations, including, among other things, annual
registration renewal, security, recordkeeping, theft and loss reporting, periodic inspection and annual quota allotments for the raw material for commercial production of our products. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations, including
the Quality System Regulation, or QSR, requirements for medical device components of our products or similar requirements, if applicable. If we or a regulatory agency discovers previously unknown
problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where, or processes by which, the product is manufactured, a regulatory agency may
impose restrictions on that product or us, including requesting that we initiate a product recall, or requiring notice to physicians, withdrawal of the product from the market or suspension of
manufacturing.
For
instance, in connection with the recall of selected lots of fentanyl patches we manufactured for Actavis in 2008, the FDA inspected our manufacturing facilities and issued a Form 483
describing certain
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deficiencies
in our manufacturing and quality systems. We submitted a response to the Form 483, and held a regulatory meeting with the FDA District Office in October 2008 to review actions we
took relating to such observations, and resumed manufacture of Fentanyl TDS in September 2008 with first commercial shipments beginning December 2008.
The
FDA conducted another inspection of our production facility in March 2009 as part of a general assignment by the FDA's Center for Drug Evaluation and Research to inspect the producers of liquid
reservoir transdermal patches. Transdermal fentanyl products, including reservoir-format patches, have been the subject of significant regulatory scrutiny. Following this inspection, the FDA issued a
Form 483 with nine observations. We submitted a response to these observations and the FDA subsequently closed out the inspection and issued us an Establishment Inspection Report, or EIR.
In
response to a fentanyl product recall in October 2010 by our partner Actavis, the FDA inspected our facility and issued a Form 483 with three observations. The FDA again inspected our
production facility in November 2011. Following the inspection, the FDA issued a Form 483 with nine observations. We submitted a reply to these observations and the FDA subsequently closed out
the inspection and issued us an EIR. The FDA has subsequently inspected our facilities two times, most recently in January and February 2013, when it issued a Form 483 identifying three
observations, and that inspection has been closed out with the issuance of an EIR in March 2013.
If
we, our products or product candidates or the manufacturing facilities for our products or product candidates fail to comply with applicable regulatory requirements, a regulatory agency
may:
•
impose restrictions on the marketing or manufacturing of the product,
suspend or withdraw product approvals or revoke necessary licenses;
•
issue warning letters, show cause notices or untitled letters describing
alleged violations, which may be publicly available;
•
commence criminal investigations and prosecutions;
•
impose injunctions, suspensions or revocations of necessary approvals or
other licenses;
•
impose fines or other civil or criminal penalties;
•
suspend any ongoing clinical trials;
•
deny or reduce quota allotments for the raw material for commercial
production of our controlled substance products;
•
delay or refuse to approve pending applications or supplements to approved
applications filed by us;
•
refuse to permit drugs or precursor chemicals to be imported or exported to
or from the United States;
•
suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
•
seize or detain products or require us to initiate a product recall.
In
addition, our or our partners' product labeling, advertising and promotion are subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims
that may be made about prescription drug products. In particular, a drug product may not be promoted for uses that are not approved by the FDA as reflected in the product's approved labeling, although
the FDA does not regulate the prescribing practices of physicians. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that
is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.
The
FDA's regulations, policies or guidance may change and new or additional statutes or government regulations may be enacted that could prevent or delay regulatory approval of our product candidates
or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative
action, either in the
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United
States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products, which would adversely affect our ability to generate revenues
and achieve or maintain profitability.
Some of our products or product candidates contain controlled substances, the making, use, sale, importation and distribution of which are subject to regulation by state,
federal and foreign law enforcement and other regulatory agencies.
Fentanyl TDS and certain of our other drug product candidates contain active ingredients which are classified as controlled substances, which are
subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Controlled substances are regulated under the Controlled
Substances Act of 1970, or CSA, and the regulations of the Drug Enforcement Administration, or DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances.
Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV
or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Fentanyl TDS is
regulated by the DEA as a Schedule II controlled substance.
Various
states also independently regulate controlled substances. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately
schedule drugs as well. While some states automatically schedule a drug when the DEA does so, in other states there must be rulemaking or a legislative action. Adverse scheduling could impair
the commercial attractiveness of such product. We or our collaborators must also obtain separate state registrations in order to be able to obtain, handle and distribute controlled substances for
clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise
arising under federal law.
For
our products or product candidates containing controlled substances, we and our partners, suppliers, contractors and distributors are required to obtain and maintain applicable registrations from
state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation, exportation and
distribution of controlled substances. These regulations are extensive and include regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas,
record keeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of drug candidates
including controlled substances. Failure to obtain and maintain required registrations or comply with any applicable regulations could delay or preclude us from developing and commercializing our
products containing controlled substances and subject us to enforcement action. In addition, because of their restrictive nature, these regulations could limit our commercialization of our
pharmaceutical systems containing controlled substances. In particular, among other things, there is a risk that these regulations may interfere with the supply of the drugs used in our clinical
trials, and in the future, our ability to produce and distribute our products in the volume needed to meet commercial demand. The DEA may seek civil penalties, refuse to renew necessary registrations
or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceeding. Because of their restrictive nature, these regulations could limit
commercialization of any of our product candidates that are classified as controlled substances.
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In addition to the level of commercial success of our approved products, our future growth is also dependent on our ability to successfully develop a pipeline of product
candidates, and we cannot give any assurance that any of our product candidates will receive regulatory approval or that any approved products will be successfully commercialized.
Our long-term growth will be limited unless we successfully develop a pipeline of additional product candidates. We do not have internal new drug
discovery capabilities, and our primary focus is on developing improved transdermal drug delivery systems by reforumulating FDA approved drugs using our proprietary technologies.
Our
near-term growth is dependent on bringing the Agile AG200-15 transdermal contraceptive patch to market in 2016. Our collaboration partner Agile has conducted Phase 3 clinical studies and
filed an NDA with the FDA for AG200-15 in April 2012. The FDA issued a Complete Response Letter in February 2013 identifying certain issues, including a request for additional clinical data, which
must be addressed before approval can be granted. We cannot assure you that Agile will be able to obtain regulatory approval for the AG200-15 product, which would limit our near-term growth prospects,
and would create uncertainty around the value and usefulness of our AG200-15 manufacturing facility and equipment.
We
have two other partnered product candidates that are the subject of ANDAs submitted by our partners to the FDA, and three product candidates in clinical development. The research, testing,
manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and in foreign
countries. Obtaining approval of an NDA or ANDA is a lengthy, expensive and uncertain process. The FDA also has substantial discretion in the drug approval process, including the ability to delay,
limit or deny approval of a product candidate for many reasons. For example our product candidates could fail to receive regulatory approval for many reasons, including the
following:
•
the FDA may disagree with the design or implementation of clinical trials;
•
the FDA may not deem a product candidate safe and effective for its proposed
indication, or may deem a product's safety risks to outweigh its clinical or other benefits;
•
the FDA may not find the data from pre-clinical studies and clinical trials
sufficient to support approval, or the results of clinical trials may not meet the level of statistical significance required by the FDA for approval;
•
the FDA may disagree with our or our partners' interpretation of data from
pre-clinical studies or clinical trials;
•
the data collected from clinical trials may not be sufficient to support the
submission of an NDA or ANDA;
•
the FDA may require additional pre-clinical studies or clinical trials;
•
the FDA may not approve of our manufacturing processes and facilities; or
•
the FDA may change its approval policies or adopt new regulations.
Any
of our product candidates may fail to achieve their specified endpoints in clinical trials. Furthermore, product candidates may not be approved even if they achieve their specified endpoints in
clinical trials. The FDA may disagree with the design of clinical trials and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and
commented on the design for clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we or our partners request, or may grant approval contingent on the
performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we or our partners believe are necessary or desirable for the successful
commercialization of our product candidates.
If
we are unable to expand our pipeline and obtain regulatory approval for our product candidates on the timelines we anticipate, we will not be able to execute our business strategy effectively and
our ability to substantially grow our revenues will be limited, which would harm our long-term business, results of operations, financial condition and prospects.
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We manufacture our products internally and may encounter manufacturing failures that could impede or delay commercial production of our current products or our product
candidates, if approved, or the preclinical and clinical development or regulatory approval of our product candidates.
Any failure in our internal manufacturing operations could cause us to be unable to meet the demand for our products and lose potential revenues,
delay the preclinical and clinical development or regulatory approval of our product candidates, and harm our reputation. Our internal manufacturing operations may encounter difficulties involving,
among other things, production yields, regulatory compliance, quality control and quality assurance, obtaining DEA quotas which allow us to produce in the quantities needed to execute on our business
plan, and shortages of qualified personnel. Our ability to commercially supply our products, and regulatory approval of our product candidates, could be impeded, delayed, limited or denied if the FDA
does not maintain the approval of our manufacturing processes and facilities. In addition, we have no experience producing our MicroCor system in commercial quantities. We have experienced product
recalls in the past and we may encounter difficulties when we attempt to manufacture commercial quantities of our product candidates in the quantities needed for our preclinical studies or clinical
trials. Such difficulties could result in commercial supply shortfalls of our products, delay in the commercial launch of any of our product candidates, if approved, delays in our preclinical studies,
clinical trials and regulatory submissions, or the recall or withdrawal of our products from the market.
We
must comply with cGMP requirements enforced by the FDA through its facilities inspection program and review of submitted technical information. In addition, we must obtain and maintain necessary
DEA and state registrations, and must establish and maintain processes to assure compliance with DEA and state requirements governing, among other things, the storage, handling, security,
recordkeeping and reporting for controlled substances. We must also apply for and receive a quota for fentanyl for our Fentanyl TDS product. Any failure to comply with these requirements may result in
penalties, including fines and civil penalties, suspension of production, suspension or delay in product approvals, product seizure or recall, operating restrictions, criminal prosecutions, withdrawal
of product approvals or severe reputational harm, any of which could adversely affect our business. If the safety of any product or product candidate or component is compromised due to a failure to
adhere to applicable laws or for other reasons, we may not be able to successfully commercialize or obtain regulatory approval for the affected product or product candidate, and we may be held liable
for injuries sustained as a result. Any of these factors could cause a delay or termination of commercialization, preclinical studies and clinical trials, regulatory submissions or approvals of our
products or product candidates, entail higher costs or result in our being unable to effectively commercialize our approved products.
Clinical drug development for our product candidates is expensive, time consuming, uncertain and susceptible to change, delay or termination.
Clinical drug development for our product candidates is very expensive, time-consuming and difficult to design and implement. Our product candidates
are in varying stages of development ranging from pre-clinical feasibility studies to registration. We estimate that clinical trials for these product candidates, if and when initiated, will continue
for several years and may take significantly longer than expected to complete. In addition, we, our partners, the FDA, an Institutional Review Board, or IRB, or other regulatory authorities, including
state and local agencies, may suspend, delay or terminate our clinical trials at any time, for various reasons, including:
•
obtaining IRB approval of each site;
•
recruiting suitable patients to participate in a trial;
•
lack of effectiveness of any product candidate during clinical trials;
•
discovery of serious or unexpected toxicities or side effects experienced by
study participants or other safety issues;
•
slower than expected rates of subject recruitment and enrollment rates in
clinical trials;
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•
difficulty in retaining subjects who have initiated a clinical trial but may
withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process or for any other reason;
•
delays in or inability to manufacture or obtain sufficient quantities of
materials for use in clinical trials;
•
inadequacy of or changes in our manufacturing process or the product
formulation;
•
delays in obtaining regulatory authorization to commence a study, or
"clinical holds" or delays requiring suspension or termination of a study by a regulatory agency, such as the FDA, before or after a study is commenced;
•
changes in applicable regulatory policies and regulations;
•
delays or failure in reaching agreement on acceptable terms in clinical
trial contracts or protocols with prospective contract research organizations, or CROs, and clinical trial sites;
•
uncertainty regarding proper dosing;
•
unfavorable results from ongoing clinical trials and preclinical studies;
•
failure of our CROs or other third-party contractors to comply with
contractual and regulatory requirements or to perform their services in a timely or acceptable manner;
•
failure by us, our employees, our collaboration partners or their employees,
or our CROs or their employees to comply with applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for
controlled substances;
•
scheduling conflicts with participating clinicians and clinical
institutions;
•
failure to design appropriate clinical trial protocols;
•
insufficient data to support regulatory approval;
•
inability or unwillingness of medical investigators to follow our clinical
protocols; or
•
difficulty in maintaining contact with subjects during or after treatment,
which may result in incomplete data.
Generally,
there is a high rate of failure for drug candidates proceeding through clinical trials. We or our partners may suffer significant setbacks in our clinical trials similar to the experience
of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even if we view the results of a clinical trial to
be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. Even after the completion of Phase 3 clinical studies, we may have to address additional
issues raised by the FDA in response to the NDA or ANDA filed by us or our partners, such as the issues with the Agile contraceptive patch. In the event that we or our partners abandon or are delayed
in the clinical development efforts related to our product candidates, we may not be able to execute on our business plan effectively, we may not be able to become profitable, our reputation in the
industry and in the investment community could be significantly damaged and our stock price could decrease significantly.
We have in the past relied and expect to continue to rely on third parties to conduct and oversee our clinical trials. If these third parties do not meet our deadlines or
otherwise conduct the trials as required we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.
We have in the past relied and expect to continue to rely on third-party CROs to conduct and oversee our clinical trials. For example, we contracted
with Nucleus Network in Australia to conduct the Phase 1 clinical trials for both our MicroCor hPTH(1-34) and the Corplex Tamsulosin products.
We
also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory
requirements, including the FDA's good clinical practice regulations and state regulations governing the handling, storage, security and
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recordkeeping
for controlled substances. These CROs and third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical
trials. We rely heavily on these parties for the execution of our clinical and preclinical studies, and control only certain aspects of their activities. We and our CROs and other third party
contractors are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in
clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to
comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authority may require us to perform additional
clinical trials before approving our or our partners' marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that
any of our clinical trials complies with GCP requirements. In addition, our clinical trials must generally be conducted with product produced under cGMP regulations. Our failure to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If
any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may not be able to enter into arrangements with alternative CROs or clinical
trial sites, or do so on commercially reasonable terms. In addition, if our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients
enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials
may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation
result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.
We have conducted and may in the future conduct clinical trials for our products or product candidates outside the United States and the FDA may not accept data from such
trials.
We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States. For example, our CRO conducted
the Phase 1 clinical trials for both our MicroCor hPTH (1-34) and the Corplex Tamsulosin products in Australia. Although the FDA may accept data from clinical trials conducted outside the
United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the study must be conducted in accordance with GCP requirements and the FDA must be able to
validate the data from the study through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing
approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the
studies were performed by clinical investigators of recognized competence; and (3) the data is considered valid without the need for an on-site inspection by FDA or, if FDA considers such an
inspection to be necessary, FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such studies would be subject to the applicable local laws of the
foreign jurisdictions where the studies are conducted. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept any such data,
it would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.
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If the FDA does not conclude that certain of our product candidates satisfy the requirements under Section 505(b)(2)of the Federal Food Drug and Cosmetics Act, or
Section 505(b)(2), or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take
significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
We and our collaboration partners are developing several proprietary product candidates, for which we and our partners intend to seek FDA approval
through the Section 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the
Federal Food, Drug and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not
conducted by or for the applicant, and for which the applicant has not received a right of reference, which could expedite the development program for our product candidates by potentially decreasing
the amount of clinical data that we or our partners would need to generate in order to obtain FDA approval. If the FDA does not allow us or our partners to pursue the Section 505(b)(2)
regulatory pathway as anticipated, we or our partners may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If
this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely
substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product
candidates, which would likely harm our competitive position and prospects. Even if we or our partners are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that
our product candidates will receive the requisite approvals for commercialization.
In
addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA's
interpretation of Section 505(b)(2). If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices,
which could delay or even prevent the FDA from approving any NDA that we or our partners submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and
Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA.
These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs or our partners' NDAs for up to 30 months depending on the outcome of any litigation. It is
not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing
products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially
delay approval while it considers and responds to the petition. In addition, even if we or our partners are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this
would ultimately lead to faster product development or earlier approval.
Moreover,
even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to
other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.
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The products that we make and develop may cause undesirable side effects or have other unexpected properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in post-approval regulatory action.
Undesirable side effects caused by product candidates could cause us, or partners, or regulatory authorities to interrupt, delay or halt clinical
trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. Results of clinical trials could reveal a high and
unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us, or our
partners, to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of
enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
The
labeling for our Fentanyl TDS product, which is common to all fentanyl transdermal products, includes warnings of serious adverse events relating to abuse potential, respiratory depression and
death, and risks relating to accidental exposure, drug interactions and exposure to heat.
Agile
has conducted two Phase 3 clinical studies of the AG200-15 product. The safety population in these studies included patients who received at least one dose of either AG200-15 or a
combination oral contraceptive, or COC. In the combined safety population of Agile's Phase 3 trials, there were a total of 22 serious treatment emergent adverse effects, or SAEs, of which 16
were from the AG200-15 group, three (0.2%) of which were considered to be possibly related to the study drug, consisting of drug overdose with Benadryl, uncontrollable nausea and vomiting, and left
subclavian deep vein thrombosis. Agile believes that AG200-15 will have a label consistent with all marketed hormonal contraceptive products, which include class labeling that warns of risks of
certain serious conditions, including venous and arterial blood clot events, such as heart attacks, thromboembolism and stroke, as well as liver tumors, gallbladder disease, and hypertension.
Regulatory authorities may require the inclusion of additional statements in the AG200-15 label, which may include a "black box" warning or contraindication.
Additionally,
if we or others identify undesirable side effects, or other previously unknown problems, caused by our products, other products with the same or related active ingredients or our, or our
partners, product candidates, after obtaining U.S. regulatory approval, a number of potentially significant negative consequences could result,
including:
•
regulatory authorities may withdraw their approval of the product;
•
regulatory authorities may require a recall of the product or we or our
partners may voluntarily recall a product;
•
regulatory authorities may require the addition of warnings in the product
label or narrowing of the indication in the product label;
•
we may be required to create a Medication Guide outlining the risks of such
side effects for distribution to patients;
•
we may be required to change the way the product is administered or modify
the product in some other way;
•
the FDA may require additional clinical trials or costly post-marketing
testing and surveillance to monitor the safety or efficacy of the product;
•
we could be sued and held liable for harm caused to patients; and
•
our reputation may suffer.
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Any
of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product and could
substantially increase the costs of commercializing our products.
Healthcare reform measures could hinder or prevent the commercial success of our products and product candidates.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system that could affect our future revenues and profitability and the future revenues and profitability of our partners. Federal and state lawmakers regularly propose and, at times, enact legislation
that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, President Obama
signed one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively, the Affordable Care Act. It contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all
of which will impact existing government healthcare programs and will result in the development of new programs. The Affordable Care Act, among other things, (i) increased the minimum Medicaid
rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to certain individuals enrolled in Medicaid managed care organizations, (ii) established
annual fees on manufacturers of certain branded prescription drugs and (iii) enacted a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered
under Medicare Part D.
In
addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among
other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for
the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions of Medicare
payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,
which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers. We expect that additional state and federal healthcare reform measures will
be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products
once approved or additional pricing pressures.
We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial
condition.
Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and
abuse and patient privacy regulation by both the federal government and the states in which we or our partners conduct our business. The laws and regulations that may affect our ability to operate
include, without limitation:
•
the federal Anti-Kickback Statute, which prohibits, among other things, any
person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the
purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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•
the federal False Claims Act, which prohibits, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to
entities that provide coding and billing advice to customers;
•
federal criminal laws that prohibit executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters;
•
the federal physician sunshine requirements under the Affordable Care Act,
which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other
transfers of value made by certain manufacturers to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare
providers and their immediate family members;
•
the federal Health Insurance Portability and Accountability Act of 1996, as
amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, all of which govern the conduct of certain electronic healthcare transactions and
protect the security and privacy of protected health information; and
•
state law equivalents of each of the above federal laws, such as
anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply
with the pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to
healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant
ways and may not have the same effect, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under
one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted Affordable Care Act, among other things, amends the intent
requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In
addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false
or fraudulent claim for purposes of the False Claims Act.
Achieving
and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management's attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other
governmental laws or regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation in federal and state
healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
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Risks Related to Our Intellectual Property
We may not be able to obtain and enforce patent rights or other intellectual property rights that cover our drug delivery systems and technologies that are of sufficient
breadth to prevent third parties from competing against us.
Our success with respect to our drug delivery systems and technologies will depend in part on our ability to obtain and maintain patent protection in
both the United States and other countries, to preserve our trade secrets, and to prevent third parties from infringing upon our proprietary rights. Our ability to protect any of our approved
products, product candidates or drug delivery systems from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable
patents. Some of the drugs we use in our products have been approved for many years and therefore our ability to obtain any patent protection relating to the drug ingredients in our products may be
limited.
Our
patent portfolio related to our transdermal drug delivery systems and technologies includes patents and patent applications in the United States and foreign jurisdictions where we believe there is
a market opportunity for our products. The covered technology and the scope of coverage vary from country to country. For those countries where we do not have granted patents, we may not have any
ability to prevent the unauthorized use of our technologies. Any patents that we may obtain may be narrow in scope and thus easily circumvented by competitors. Further, in countries where we do not
have granted patents, third parties may be able to make, use, or sell products identical to, or substantially similar to our products or product candidates.
Due
to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to obtain, maintain and enforce patents is
uncertain and involves complex legal and factual questions. Accordingly, rights under any existing patents or any patents we might obtain or license may not provide us with sufficient protection for
our products and product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we
cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims
of these patents are or will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us.
Our
MicroCor technology is new, although patents relating to microneedle technology were first filed in the 1990s. Although we believe that this technology includes certain inventions that are unique
and not duplicative of any prior art, we do not have outstanding issued patents covering our more recent developments in this technology and we are unsure of the patent protection that we will be
successful in obtaining, if any.
The
laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting
and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign
jurisdictions, our business prospects could be substantially harmed. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual
questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the
value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
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The
degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to
gain or keep our competitive advantage. For example:
•
we might not have been the first to invent or the first to file the
inventions covered by each of our pending patent applications and issued patents;
•
others may independently develop similar or alternative technologies or
duplicate any of our technologies;
•
the patents of others may have an adverse effect on our business;
•
any patents we obtain or our licensors' issued patents may not encompass
commercially viable products, may not provide us with any competitive advantages, or may be challenged by third parties;
•
any patents we obtain or our in-licensed issued patents may not be valid or
enforceable; or
•
we may not develop additional proprietary technologies that are patentable.
If
we or our licensors fail to prosecute, maintain and enforce patent protection for our drug delivery technologies, products or product candidates, our ability to develop and commercialize our
technologies, products or product candidates could be adversely affected and we might not be able to prevent competitors from making, using and selling competing technologies or products. This failure
to properly protect the intellectual property rights relating to our technologies, products or product candidates could have a material adverse effect on our business, financial condition and results
of operations. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Furthermore, in connection with our license agreement with P&G, we granted to P&G a broad
exclusive license for certain fields of use, excluding prescription drug products and foot care and wound care products, to our Corplex technology and related know-how. P&G may sublicense its rights
under that license, including to another manufacturer, at any time, and we do not have any assurance that they will continue to use us as their development partner and manufacturer in the future.
Proprietary
trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how by entering into
confidentiality agreements with third parties, and proprietary information and invention agreements with certain employees, consultants and advisors, third parties may still obtain this information or
we may be unable to protect our rights. We also have limited control over the protection of trade secrets used by our licensees, partners and suppliers. There can be no assurance that binding
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered
by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or
unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information.
If we or our partners are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that
litigation could have a material adverse effect on our business.
Our commercial success depends upon our ability and the ability of our partners to develop, manufacture, market and sell our products and product
candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third
parties exist in the fields relating to our products and product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may
assert that our drug delivery systems, technologies, products or product candidates infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents
cover various types of drugs, drug delivery systems or their methods of use. Thus, because of the large
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number
of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege they have patent rights encompassing our products, product candidates,
technologies or methods.
In
addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our products, product candidates or proprietary
technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign
jurisdictions are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that
others have not filed patent applications for technology covered by our own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file,
patent applications covering our products, product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents,
which could further require us to obtain rights to issued patents covering such technologies. If another party has filed an U.S. patent application on inventions similar to those owned or in-licensed
to us, we or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention.
A
substantial portion of our partners' products and product candidates are generic versions of pre-existing brand name drugs and we may be exposed to, or threatened with, future litigation by third
parties having patent or other intellectual property rights alleging that our partners' products and/or product candidates and/or proprietary technologies infringe their intellectual property rights,
including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. These lawsuits could claim that there are existing patent rights for such drug and this type of litigation
can be costly and could adversely affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our
commercialization partners are infringing the third party's patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will
order us or our partners to pay the other party damages
for having violated the other party's patents. In addition to facing litigation risks directly, we have agreed to indemnify several of our partners against claims of infringement caused by our
proprietary technologies, and we have entered or may enter into cost-sharing agreements with some of our partners that could require us to pay some of the costs of patent litigation brought against
those partners whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater
responsibility for infringement damages than would be assumed just on the basis of our technology.
There
is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. To date, no litigation asserting
infringement claims has ever been brought against us. If a third party claims that we or our partners infringe its intellectual property rights, we may face a number of issues, including, but not
limited to:
•
infringement and other intellectual property claims which, regardless of
merit, may be expensive and time-consuming to litigate and may divert our management's attention from our core business;
•
substantial damages for infringement, which we may have to pay if a court
decides that the product or technology at issue infringes or violates the third party's rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and
the patent owner's attorneys' fees;
•
a court prohibiting us from selling or licensing the product or using the
technology unless the third party licenses its intellectual property rights to us, which it is not required to do;
•
if a license is available from a third party, we may have to pay substantial
royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products or technologies; and
•
redesigning our products or processes so they do not infringe, which may not
be possible or may require substantial monetary expenditures and time.
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Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we or our partners can because they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of any litigation could harm our ability to raise additional funds or otherwise adversely affect our business, results of operations,
financial condition and prospects.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed to us alleged trade secrets of their other clients
or former employers.
As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our products and product candidates,
many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or
potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their
former employers or their former or current customers. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend
against any such claims. Even if we are successful in defending against any such claims, any such litigation could be protracted, expensive, a distraction to our management team, not viewed favorably
by investors and other third parties, and may potentially result in an unfavorable outcome.
Risks Relating to this Offering and an Investment in Our Common Stock
Our principal stockholder has the ability to control our business, which may be disadvantageous to other stockholders.
Following the completion of this offering, after giving effect to the recapitalization described under "Related Party
Transactions—Recapitalization," Essex Woodlands Health Venture Fund VII, L.P., together with certain of its affiliates, which together we refer to as Essex Woodlands, will collectively
beneficially own or control approximately       % of the voting power of our outstanding common stock, assuming no exercise of the underwriters' option to purchase additional shares. In
addition, Ron Eastman, a Managing Director of Essex Woodlands, is a member of our board of directors. As a result of its ability to control a majority of the voting power of our outstanding common
stock, Essex Woodlands has the ability to control all matters requiring approval by our stockholders, including the election and removal of directors, amendments to our certificate of incorporation
and bylaws, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. Essex Woodlands may have interests that are different from those of
other stockholders. Moreover, this concentration of share ownership makes it impossible for other stockholders to replace directors and management without the consent of Essex Woodlands. In addition,
this significant concentration of share ownership may adversely affect the price at which prospective buyers are willing to pay for our common stock because investors may perceive disadvantages in
owning stock in companies with controlling stockholders.
We will be a "controlled company" within the meaning of the NASDAQ rules and, as a result, will qualify for exemptions from certain corporate governance requirements. If we
rely on these exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon completion of this offering, Essex Woodlands will continue to control a majority of the voting power of our outstanding common stock. As a
result, we will be a "controlled company" within the meaning of the NASDAQ corporate governance requirements. Under these rules, a company of which more than 50% of the voting power is held by an
individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including the requirements:
•
that a majority of the board of directors consists of independent directors;
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•
that we have a nominating and corporate governance committee that is
composed entirely of independent directors; and
•
that we have a compensation committee that is composed entirely of
independent directors.
We
do not intend to utilize these exemptions. However, we may use these exemptions in the future, and as a result, we could choose not to have a majority of independent directors on our board of
directors, or any of our board committees. If that were the case, you would not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ corporate
governance requirements.
If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.
If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the pro forma as adjusted amount of
$               per share, because the initial public offering price of $               is
substantially higher than the pro forma as adjusted net book value per share of our outstanding common
stock as of December 31, 2013. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their
shares. There will also be substantial dilution from the issuance of additional shares of common stock in the recapitalization that is occurring concurrently with this offering. In addition, you may
also experience additional dilution upon future equity issuances, including upon conversion of any outstanding debt, or the exercise of stock options to purchase common stock granted to our employees,
consultants and directors under our stock option and equity incentive plans. See the section entitled "Dilution."
We expect that the price of our common stock will fluctuate substantially.
There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock was determined
through negotiations between the underwriters and us and may vary from the market price of our common stock following the offering. If you purchase shares of our common stock in this offering, you may
not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of this offering or, if it does develop,
it may not be sustainable. The trading prices of the securities of pharmaceutical companies have been highly volatile. The market price of our common stock may fluctuate significantly in response to
numerous factors, many of which are beyond our control, including:
•
the success of, and fluctuations in, the commercial sales of Clonidine TDS,
Fentanyl TDS and Crest Whitestrips products or any other products approved for commercialization;
•
the development status of our product candidates, including whether any of
our product candidates receive regulatory approval;
•
the execution of our partnering, manufacturing and other aspects of our
business plan;
•
variations in the level of expenses related to our commercialization
activities;
•
the performance of third parties on whom we rely for clinical trials,
marketing, sales and distribution, including their ability to comply with regulatory requirements;
•
the results of our or our partners' preclinical studies and clinical trials;
•
variations in the level of expenses related to our product candidates or
preclinical and clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites;
•
price and volume fluctuations in the overall stock market;
•
changes in operating performance and stock market valuations of other
pharmaceutical companies;
•
market conditions or trends in our industry or the economy as a whole;
•
our execution of collaboration, co-promotion, licensing or other
arrangements, and the timing of payments we may make or receive under these arrangements;
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•
the public's response to press releases or other public announcements by us
or third parties, including our filings with the SEC and announcements relating to litigation or other disputes, strategic transactions, intellectual property or fentanyl or other controlled
substances impacting us or our business;
•
the financial projections we may provide to the public, any changes in these
projections or our failure to meet these projections;
•
changes in financial estimates by any securities analysts who follow our
common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock;
•
ratings downgrades by any securities analysts who follow our common stock;
•
the development and sustainability of an active trading market for our
common stock;
•
future sales of our common stock by our officers, directors and significant
stockholders;
•
other events or factors, including those resulting from war, incidents of
terrorism, natural disasters or responses to these events; and
•
changes in accounting principles.
In
addition, the stock markets, and in particular the NASDAQ Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In
the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our
resources and the attention of management could be diverted from our business.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a
result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet
our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of
our common stock. In addition, any future testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our
financial statements or identify other areas for further attention or improvement.
We
will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial
reporting as early as the fiscal year ending September 30, 2015. However, for as long as we are an "emerging growth company" under the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years.
An independent assessment of the effectiveness of our internal controls could detect problems that our management's assessment might not. Undetected material weaknesses in our internal controls could
lead to financial statement restatements and require us to incur the expense of remediation.
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We
are in the process of transferring from our previous financial tracking system to an updated enterprise resource planning system. Our previous system had been in place since our founding and the
transition will require new training and extensive changes to our system of our internal financial reporting. There is no guarantee that we will be able to transition smoothly and maintain effective
internal controls over the reporting process during this transition.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price
for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock
could decrease, which could cause our stock price and trading volume to decline.
No active market for our common stock exists or may develop, and you may not be able to resell your common stock at or above the initial public offering price.
Prior to this offering, there has been no public market on which our common stock could be traded. The initial public offering price of our common
stock for this offering will be determined through negotiations between us and the representatives of the underwriters, and may not be indicative of the market price of our common stock following this
offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest
in our company will lead to the development of an active trading market on the NASDAQ Global Market or otherwise or how liquid that market might become. An active public market for our common stock
may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is
attractive to you, or at all.
Future sales of our common stock or securities convertible into our common stock may depress our stock price.
Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market could occur at any
time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will
have                             outstanding shares of common stock, based on the number of shares
outstanding as of December 31, 2013, that may be sold after the expiration of lock-up agreements at least
180 days after the date of this prospectus pursuant to Rule 144 or Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, unless held by an affiliate of
ours, as more fully described in the section entitled "Shares Eligible for Future Sale."
Moreover,
we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the
public market upon issuance, subject to the lock-up agreements described above and in the section entitled "Underwriting—No Sales of Similar Securities."
If
a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading
price of our common stock and impede our ability to raise future capital.
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Anti-takeover provisions in our charter documents and Delaware law might deter acquisition bids for us that you might consider favorable.
Our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult without
the approval of our board of directors. These provisions:
•
establish a classified board of directors so that not all members of our
board are elected at one time;
•
authorize the issuance of undesignated preferred stock, the terms of which
may be established and shares of which may be issued without stockholder approval, and which may include rights superior to the rights of the holders of common stock;
•
prohibit stockholder action by written consent, which requires all
stockholder actions to be taken at a meeting of our stockholders;
•
provide that the board of directors is expressly authorized to make, alter,
or repeal our bylaws; and
•
establish advance notice requirements for nominations for elections to our
board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
In
addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits
stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. These anti-takeover provisions and other provisions under Delaware law could discourage, delay
or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult
for you and other stockholders to elect directors of your choosing so as to cause us to take certain corporate actions you desire.
We qualify as an "emerging growth company" as defined in the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth
companies, which could make our common stock less attractive to investors.
We qualify as an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not "emerging growth companies" including certain reduced financial statement reporting obligations, reduced disclosure obligations
about our executive compensation arrangements, exemptions from the requirement that we solicit non-binding advisory votes on executive compensation or golden parachute arrangements, and exemption from
the auditor's attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We cannot predict if investors will find our common stock less attractive because we may rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company." We will remain an
"emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more, (ii) the last day of our
fiscal year following the fifth anniversary of the date of the completion of this offering, (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the
previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Because management has broad discretion as to the use of the net proceeds from this offering, you may not agree with how we use them, and such proceeds may not be applied
successfully.
Our management will have considerable discretion over the use of proceeds from this offering. We intend to use the net proceeds from this offering to
fund:
•
Phase 2 clinical trials for MicroCor hPTH(1-34) and Corplex
Tamsulosin;
•
scale up of production capability for our MicroCor products;
•
formulation and development of our proprietary Corplex products;
•
advancement of our MicroCor technology;
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•
the repurchase of shares of common stock pursuant to the recapitalization
described in more detail in "Related Party Transactions—Recapitalization;" and
•
working capital and general corporate purposes.
In
addition, a portion of the net proceeds may also be used to acquire or license products, technologies or businesses. However, our management will have broad discretion in the application of the net
proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock. You will be relying on the judgment of
our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our
management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any cash
dividends on shares of our common stock for the foreseeable future. We are also restricted from paying dividends under the SVB line and the term loan agreement with Capital Royalty. Any determination
to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by
applicable law and other factors our board of directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend entirely on the
appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including
statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words
"believe," "may," "will," "estimate," "continue," "anticipate," "would," "could," "should," "intend," "expect," and similar expressions are intended to identify forward-looking statements. We have
based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions,
including those described in the "Risk Factors" section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and
actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we
believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to
update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations.
INDUSTRY AND MARKET DATA
Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our general
expectations, market position, market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have
also made assumptions based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets for our solutions. These data involve a number of assumptions and
limitations, and you are cautioned not to give undue weight to such estimates. We believe the market position, opportunity and market size information included in this prospectus is reliable and the
conclusions contained in the third-party information are reasonable. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which
we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other
factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of               shares of common stock in this offering will be approximately
$                million, or approximately $                million if the underwriters
exercise in full their option to purchase additional shares, assuming an initial public offering
price of $               per share, which is the midpoint of the price range on the cover page of this prospectus, and after deducting estimated underwriting discounts and
commissions and estimated
offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $               per share would increase (decrease) the net
proceeds to us from this
offering by $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting
estimated underwriting
discounts and commissions. Similarly, each increase (decrease)
of one million shares in the number of shares offered by us at the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering, after deducting estimated
underwriting discounts and commissions, by $                million.
The
principal purpose of this offering is to create a public market for our common stock. We intend to use the net proceeds to us from this offering as follows:
•
approximately $       to $        million for
Phase 2 clinical trials for MicroCor hPTH(1-34) and Corplex Tamsulosin;
•
approximately $       to $        million for scale up
of production capability for our MicroCor products;
•
approximately $       to $        million for
formulation and development of our proprietary Corplex products;
•
approximately $       to $        million for
advancement of our MicroCor technology;
•
approximately $                         million for
the repurchase of shares
of common stock pursuant to the recapitalization described in more detail in "Related Party Transactions—Recapitalization;" and
•
any remaining balance for working capital and other general corporate
purposes.
We
may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets. However, we have no current plan,
commitments or obligations to do so.
Pending
other uses, we intend to invest the proceeds in interest-bearing, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government, or hold as
cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the application of the net proceeds we receive from our initial public
offering, and investors will be relying on the judgment of our management regarding the application of the net proceeds.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation of our
business and do not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our board of
directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of
directors considers relevant. In addition, the SVB line and the term loan agreement with Capital Royalty restricts our ability to pay dividends.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31,
2013:
•
on an actual basis;
•
on a pro forma basis to give effect to the following items that will occur
immediately prior to the closing of this offering: (i) the automatic conversion of all outstanding shares of our convertible preferred stock into common stock, (ii) the related
reclassification of the preferred stock warrant liability to additional paid-in capital upon the conversion of the shares of convertible preferred stock underlying the warrants that make up the
liability, (iii) the conversion of our outstanding convertible and subordinated notes into 54,779,413 shares of common stock and the related reclassification of the subordinated note embedded
derivative liability to additional paid-in capital, (iv) the repurchase of 10,885,884 shares from our founders and the related reclassification of our redeemable common stock to additional
paid-in capital, (v) the issuance of               shares of common stock upon the automatic net exercise of certain outstanding warrants, based on the assumed initial
offering price of
$               per share, the midpoint of the price range on the cover page this prospectus, and (vi) the amendment and restatement of our certificate of incorporation
in connection with our
initial public offering; and
•
on a pro forma as adjusted basis to give effect to (i) the pro forma
adjustments set forth above and (ii) the issuance and sale by us of               shares of common stock in this offering at an assumed initial public offering price of
$               per
share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The
unaudited pro forma and pro forma as adjusted information below is illustrative only, and cash and cash equivalents, total stockholders' equity and total capitalization following the completion of
our initial public offering will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing. You should read this table in
conjunction with the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock" and our financial statements and
related notes included elsewhere in this prospectus.
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Table of Contents
As of December 31, 2013
Actual
Pro Forma
Pro Forma
As Adjusted
(1)
(In thousands, except share and per share data)
Cash and cash equivalents
$
7,416
$
$
Debt, current and long-term portions
65,903
Recall liability, current and long-term portions
4,552
Preferred stock warrant liability
603
Subordinated note embedded derivative liability
6,338
Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual;
no shares authorized, issued or outstanding, pro forma and pro forma as adjusted
57,261
Redeemable common stock, par value $0.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
3,224
Stockholders' deficit:
Preferred stock, par value of $0.001 per share; no shares authorized, issued or outstanding,
actual;               shares authorized, and no shares issued or outstanding, pro forma and pro forma as adjusted
—
Common stock, par value of $0.001 per share; 115,000,000 shares authorized and 22,514,144 shares issued and outstanding,
actual;               shares authorized, pro forma and pro forma as adjusted;               shares
issued and outstanding, pro forma;               shares issued and outstanding, pro forma as adjusted
19
Additional paid-in capital
(30,118
)
Accumulated deficit
(94,521
)
Total stockholders' equity (deficit)
(124,620
)
Total capitalization
$
13,261
$
$
(1)
A
$1.00 increase (decrease) in the assumed initial public offering price of $               per share would increase (decrease) each of cash
and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by $           million, assuming that the number of shares offered by us, as set forth
on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of one million shares in the
number of shares offered by us would increase (decrease) cash or cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by approximately
$           million, assuming the assumed initial public offering price remains the same and after deducting the underwriting discounts and commissions. If the underwriters' option to
purchase additional shares is exercised in full, the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders' equity
and total capitalization would increase by approximately $           million, after deducting estimated underwriting discounts and commissions, and we would
have               shares of
our common stock issued and outstanding, pro forma as adjusted.
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Table of Contents
The table above excludes the following shares:
•
15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December 31, 2013, with a weighted-average exercise price of $0.22 per share;
•
4,718,000 shares of common stock issuable upon the exercise of options
granted between January 1, 2014 and March 3, 2014, with an exercise price of $0.41 per share;
•
1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $0.92 per share, that do not expire upon the completion of this
offering;
•
82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $0.01 per share, that do not expire upon the completion of this offering;
•
shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering;
•
shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and
•
542,018 shares of common stock available for future issuance as of
March 3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering.
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DILUTION
If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share
of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after our initial public offering.
Our
pro forma net tangible book value as of December 31, 2013 was $                million, or
$               per share of common stock. Our pro forma net tangible book value per share
represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of December 31,
2013, after giving effect to the following items that will occur immediately prior to the closing of this offering: (i) the automatic conversion of all outstanding shares of our convertible
preferred stock into common stock, (ii) the related reclassification of the preferred stock warrant liability to additional paid-in capital upon the conversion of the shares of convertible
preferred stock underlying the warrants that make up the liability, (iii) the conversion of our outstanding convertible and subordinated notes into 54,779,413 shares of common stock and the
related reclassification of the subordinated note embedded derivative liability to additional paid-in capital, (iv) the repurchase of 10,885,884 shares from our founders and the related
reclassification of our redeemable common stock to additional paid-in capital, and (v) the issuance of               shares of common stock upon the automatic
net exercise of certain outstanding warrants, based on the assumed initial offering price of $               per share, the midpoint of the price range on the cover page this
prospectus.
After
giving effect to our sale in our initial public offering of               shares of common stock at an assumed initial public offering price of the common stock of
$               per share,
the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of December 31, 2013 would have been $                million, or
$               per share of common stock. This represents an immediate increase in
pro forma as adjusted net tangible book value of $               per share to our existing stockholders and an immediate dilution of
$               per share to investors purchasing shares in our
initial public offering.
The
following table illustrates this per share dilution.
Assumed initial offering price per share
$
Pro forma net tangible book value per share as of December 31, 2013
$
Increase in pro forma net tangible book value per share attributable to investors purchasing shares in our initial public offering
Pro forma as adjusted net tangible book value per share after our initial public offering
Dilution in pro forma net tangible book value per share to investors in this offering
$
A $1.00 increase (decrease) in the assumed initial public offering price of $               per share would increase (decrease) our pro forma as adjusted net
tangible book value per share after our initial public offering by $               , assuming that the number of shares offered by us, as set forth on the cover page of this
prospectus, remains the
same, and after deducting the estimated underwriting discounts and commissions payable by us. Each increase of one million shares in the number of shares offered by us would increase our pro forma as
adjusted net tangible book value per share, and decrease the dilution per share to investors in this offering, by $               per share. Each decrease of one million
shares in the number of
shares offered by us would decrease our pro forma as adjusted net tangible book value per share, and increase the dilution per share to investors in this offering, by
$               per share.
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If
the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per share after giving effect to our initial public offering would be
$               per share, and the dilution in pro forma net tangible book value per share to investors in our initial public offering would be
$               per share.
The
following table summarizes, on the pro forma as adjusted basis as described above, as of December 31, 2013, the differences between the number of shares of our common stock purchased from
us, the total cash consideration paid and the average price per share paid by our existing stockholders and by our new investors purchasing shares in our initial public offering at the assumed initial
public offering price of the common stock of $               per share, the midpoint of the price range on the cover page of this prospectus, before deducting estimated
underwriting discounts and
commissions and estimated offering expenses payable by us:
Shares Purchased
Total Consideration
Average Price
Per Share
Number
Percent
Amount
Percent
Existing stockholders
$
$
New investors
Total
%
$
%
A $1.00 increase (decrease) in the assumed initial public offering price of $               per share would increase (decrease) total consideration paid by new
investors by $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after
deducting estimated
underwriting discounts and commissions payable by us.
If
the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own          % and our new investors would
own          % of the total
number of shares of our common stock outstanding after our initial public offering.
The
above table and discussions are based on               shares of our common stock outstanding as of December 31, 2013 on the pro forma as adjusted basis described above,
and exclude the
following shares:
•
15,454,366 shares of common stock issuable upon the exercise of options
outstanding as of December 31, 2013, with a weighted-average exercise price of $0.22 per share;
•
4,718,000 shares of common stock issuable upon the exercise of options
granted between January 1, 2014 and March 3, 2014, with an exercise price of $0.41 per share;
•
1,543,765 shares of common stock issuable upon the exercise of warrants to
purchase convertible preferred stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $0.92 per share, that do not expire upon the completion of this
offering;
•
82,000 shares of common stock issuable upon the exercise of warrants to
purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $0.01 per share, that do not expire upon the completion of this offering;
•
shares of our common stock reserved for future issuance
under our 2014 Equity Incentive Plan that will become effective in connection with this offering;
•
shares of our common stock reserved for future issuance
under our 2014 Employee Stock Purchase Plan that will become effective in connection with this offering; and
•
542,018 shares of common stock available for future issuance as of
March 3, 2014 under our 2012 Equity Incentive Plan, which will be added to the shares reserved for issuance under the 2014 Equity Incentive Plan that will become effective in connection with
this offering.
To
the extent that any outstanding options or warrants are exercised, new investors will experience further dilution.
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SELECTED FINANCIAL DATA
The following selected statement of operations data for fiscal 2012 and 2013 and the balance sheet data as of September 30, 2012 and 2013 have
been derived from our audited financial statements and related notes included elsewhere in this prospectus. We derived the selected statements of operations data for the three months ended
December 31, 2012 and 2013 and the selected balance sheet data as of December 31, 2013 from our unaudited interim condensed financial statements and related notes included elsewhere in
this prospectus. Our unaudited interim condensed financial statements were prepared on the same basis as our audited financial statements and include, in our opinion, all normal recurring adjustments
that we consider necessary for a fair presentation of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may
be expected in the future. You should read the following selected financial data below in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and related notes included elsewhere in this prospectus.
Year Ended September 30,
Three Months Ended
December 31,
2012
2013
2012
2013
(In thousands, except share and per share data)
Statement of Operations Data:
Revenues:
Product revenues
$
35,716
$
38,704
$
9,972
$
8,100
Contract research and development revenues
6,838
10,750
2,588
2,064
Other revenues
306
816
64
304
Total revenues
42,860
50,270
12,624
10,468
Costs and operating expenses:
Cost of product revenues
24,360
24,828
6,233
5,229
Cost of contract research and development revenues
10,244
11,856
3,122
3,537
Research and development expenses
3,966
5,496
1,052
861
General and administrative expenses
4,645
6,525
1,792
1,810
Amortization of intangible assets
512
541
131
130
Gain on disposal and sale and leaseback of equipment
(57
)
(177
)
(43
)
(37
)
Total costs and operating expenses
43,670
49,069
12,287
11,530
Income (loss) from operations
(810
)
1,201
337
(1,602
)
Interest income
4
9
3
2
Interest expense
(5,247
)
(7,705
)
(1,773
)
(2,064
)
Change in fair value of preferred stock warrant liability
21
(14
)
—
(43
)
Change in fair value of subordinated note embedded derivative liability
—
(7,367
)
—
1,029
Other income
582
—
—
—
Loss before income taxes
(5,450
)
(13,876
)
(1,433
)
(2,098
)
Income tax benefit (expense)
7
(1
)
—
—
Net loss and comprehensive loss
$
(5,443
)
$
(13,877
)
$
(1,433
)
$
(2,098
)
Net loss attributable to common stockholders, basic and diluted
(1)
$
(5,443
)
$
(13,877
)
$
(1,433
)
$
(2,098
)
Net loss per share attributable to common stockholders, basic and diluted
(1)
$
(0.24
)
$
(0.62
)
$
(0.06
)
$
(0.09
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
(1)
22,227,342
22,452,114
22,341,554
22,521,505
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
(1)
$
$
Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
(2)
:
(1)
See Note 14 to our annual audited financial statements and Note 10 to our unaudited
interim condensed financial statements for an explanation of the method used to calculate basic and diluted net loss and pro forma net loss per share attributable to common stockholders and the
weighted average number of shares used in the computation of the per share amounts.
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Table of Contents
As of
September 30,
As of
December 31,
2012
2013
2013
(In thousands)
Balance Sheet Data:
Cash and cash equivalents
$
12,245
$
13,581
$
7,416
Working capital
11,102
8,594
5,958
Total assets
37,202
44,022
39,484
Preferred stock warrant liability
546
560
603
Subordinated note embedded derivative liability
—
7,367
6,338
Deferred contract revenues, current and long-term portions
5,479
5,800
5,976
Debt, current and long-term portions
54,330
63,685
65,903
Recall liability, current and long-term portions
5,000
4,832
4,552
Convertible preferred stock
57,261
57,261
57,261
Redeemable common stock
3,224
3,224
3,224
Total stockholders' deficit
(106,346
)
(119,100
)
(124,620
)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
the section titled "Selected Financial Data" and the financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to,
those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this prospectus. Our fiscal year ends September 30. Throughout this discussion and
analysis, references to "fiscal" refer to the years ended September 30.
Company Overview
We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or
self-funded programs at earlier stages.
Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. All of our current products are distributed, promoted and marketed by our partners. Our partners include
The Procter & Gamble Company, or P&G, Par Pharmaceutical, Inc., Teva Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies.
Most of these entities have substantially greater financial and operating resources than we do, including global operations. We have never had, nor do we currently have, our own sales force or
marketing capabilities. We do not control the market prices that our marketing partners set for our products and, consequently, we do not control the market shares or rates of adoption for our
products.
Our
partnership with P&G began in 2005 with the development of Crest Whitestrips, which P&G commercially launched in 2009. P&G currently sells Whitestrips throughout North America. Our total revenues
from P&G were $11.8 million in fiscal 2013 and $3.0 million for the three months ended December 31, 2013.
Our
partnership with Teva began in 2004, with Teva's predecessor, Barr Laboratories. Together with Barr, we developed Clonidine TDS, which Teva commercially launched in 2010. Teva currently sells
Clonidine TDS throughout North America. Our total revenues from Teva were $16.7 million in fiscal 2013 and $3.7 million for the three months ended December 31, 2013.
Our
partnership with Par is the result of an FTC-mandated divestiture of the product from Actavis, Inc. in connection with the merger with Watson Pharmaceuticals. We began the development of
Fentanyl TDS with Abrika LLLP in May 2002, and Abrika was subsequently acquired by Actavis in 2007. Actavis commercially launched Fentanyl TDS in 2007. Par currently sells Fentanyl TDS
throughout the United States. Our total revenues from Par were $16.6 million in fiscal 2013 and $3.2 million for the three months ended December 31, 2013.
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In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase 3
development by our partner Agile. AG200-15 is a combined hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, at levels comparable to low-dose oral
contraceptives, through the skin in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required before marketing a
new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional Phase 3 clinical trial
based on this guidance and intends to supplement the NDA with the results of the additional Phase 3 clinical trial. Based on market research conducted by Agile, AG200-15 has the potential to reach a
peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market share of hormonal contraceptive
prescriptions in the United States currently represents approximately $108 million of annual gross sales.
We
are developing two additional products utilizing our proprietary technologies that we plan to advance into Phase 2 trials in 2014 and 2015. MicroCor hPTH(1-34) utilizes our MicroCor
technology to deliver parathyroid hormone, a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form. Corplex Tamsulosin is a patch we are developing to
deliver tamsulosin to patients with benign prostatic hyperplasia, or enlarged prostate. It is designed to deliver a controlled dose over several days and to reduce side effects compared to currently
marketed products. We are not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin.
We
have not been profitable since fiscal 2005 and, as of December 31, 2013, had an accumulated deficit of $94.5 million. We incurred net losses of $5.4 million and
$13.9 million in the fiscal years 2012 and 2013, respectively, and $2.1 million for the three months ended December 31, 2013. We expect to continue to incur net operating losses
for at least the next several years as we advance our products through clinical development, seek regulatory approval, prepare for and, if approved, proceed to further commercialization, expand our
operations and facilities, and grow in new and existing markets, territories, and industries. We will need substantial additional funding to support our operating activities. Adequate funding may not
be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations,
or financial condition.
Components of Statements of Operations
Revenues
During fiscal 2012 and 2013 and the three months ended December 31, 2013, we recognized revenues in three categories: product revenues,
contract research and development revenues, and other revenues.
Product
revenues represented 83% and 77% of our total revenues during fiscal 2012 and 2013, respectively, and 77% of our total revenues during the three months ended December 31, 2013. Product
revenues consist of product sales, royalties and profit sharing from products that have been commercialized and are sold by our partners. Clonidine TDS, Fentanyl TDS and Crest Whitestrips make up the
significant majority of our product revenues. Our product revenues from Clonidine TDS in fiscal 2013 were higher than historic levels, primarily as a result of Teva's increased market share resulting
from a major competitor's diminished ability to supply its product for seven months during the year. We expect our product revenues from Clonidine TDS during fiscal 2014 to be lower than they were
during fiscal 2013, and more consistent with the amount of product revenues in fiscal 2012, as this competitor has resumed supply at historic levels. Based on forecasted demand provided to us from our
Fentanyl TDS marketing partner, Par, we expect our product revenues from Fentanyl TDS to continue to decline significantly in fiscal 2014.
We
also generate contract research and development revenues from agreements for the research, development and commercialization of our products. The terms of the agreements include nonrefundable
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upfront
payments, partial or complete reimbursement of research and development costs and milestone payments. Contract research and development revenues are primarily derived from our development
activities related to AG200-15, Crest Whitestrips and a product currently in the late stages of development. In fiscal 2013, we received a total of $4.3 million in contract research and
development revenues from Agile, $3.5 million from Teva, $2.0 million from P&G and an aggregate of $0.9 million from our other collaboration partners. These amounts represented
40%, 33%, 19% and 8%, respectively, of our total contract research and development revenues for fiscal 2013. For the three months ended December 31, 2013, we received a total of
$0.1 million in contract research and development revenues from Agile, $0.8 million from Teva, $0.7 million from P&G and an aggregate of $0.5 million from our other
collaboration partners, which amounts represented 6%, 37%, 32% and 25%, respectively, of our total contract research and development revenues for the three months ended December 31, 2013. We
believe contract research and development revenues will continue to grow as we further develop existing products and as we continue to add new products with partners.
Other
revenues consists primarily of income derived from our arrangements with our partners, whereby a portion of the revenues received under these agreements is treated for accounting purposes as
rental income from
embedded leases associated with these relationships. Other revenues have not been and are not expected to be a significant portion of our revenues.
Cost of Product Revenues
The primary components of our cost of product revenues are materials, personnel costs, depreciation, facilities costs, other overhead costs, and
infrastructure expenses associated with the manufacturing of our products. Our manufacturing overhead costs are significant, and are currently allocated among our products at rates consistent with
current unit production volumes. As the number of units we manufacture rises, our overhead costs should rise less rapidly due to efficiencies of scale, resulting in lower cost to produce these higher
product volumes. Conversely, if total unit volumes fall, as we expect to be the case in fiscal 2014, the costs of product revenues, measured as a percentage of product revenues, will rise as we lose
economies of scale.
Cost of Contract Research and Development Revenues
We incur expenses related to our contract research and development revenues from our partner agreements. These expenses consist primarily of personnel
costs, materials and supplies passed through to our partners, and overhead costs. We expense all contract research and development costs, including costs to be subsequently reimbursed under
development contracts, in the periods in which they are incurred. Our costs of contract research and development will fluctuate depending on the timing and stage of our various partner arrangements.
In certain cases, contract research and development costs exceed contract research and development revenues for those agreements, and will not be profitable. We enter into certain research and
development arrangements that we do not expect to be profitable because we expect that the long-term benefits of those arrangements outweigh the short-term costs. Furthermore, we recently, and expect
to continue to, enter into other research and development arrangements in which we will be sharing the costs of development with our partner resulting in our costs exceeding our revenues on these
projects.
Research and Development Expenses
Research and development expenses include costs incurred to develop our transdermal drug delivery products. These costs consist of personnel costs,
materials and supplies, overhead and facility costs, preclinical and non-clinical development costs, clinical trial and related clinical manufacturing costs, contract services, and other outside
costs. We expense all research and development expenses in the periods in which they are incurred. We expect our research and development expenses will increase in absolute dollars in future periods
as we continue to invest in research and development activities related to further clinical
development of MicroCor hPTH(1-34) for Osteoporosis and Corplex Tamsulosin for BPH and other future development projects.
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General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including stock-based compensation, for employees in our administration,
finance, business development, human resources and information technology functions. Other expenses include professional fees for accounting and legal services and costs of consultants and other
outside services. We expect that our general and administrative expenses will increase with the growth in our revenues and the continued development of our product pipeline, and will increase
significantly as we begin to operate as a public company after the completion of this offering.
Interest Income
Interest income consists primarily of interest earned on our cash and cash equivalents balances.
Interest Expense
Interest expense primarily consists of the interest charges associated with our convertible notes, subordinated note, term loan agreement, and capital
lease obligations, some of which are paid periodically in cash and others of which accrue without cash payments until maturity. For further discussion see "—Liquidity and Capital
Resources—Description of Certain Indebtedness."
Change in Fair Value of Preferred Stock Warrant Liability
Certain outstanding convertible preferred stock warrants are classified as liabilities on our balance sheets at fair value as we determined them to be
derivative instruments because they contain antidilution provisions that protect the holders from certain future equity issuances at prices below the original issue price of the underlying security.
We remeasure the convertible preferred stock warrants to fair value at each balance sheet date with the corresponding gain or loss from the adjustment recorded in the statements of operations and
comprehensive loss. We will continue to adjust the liability for changes in fair value until the earliest of the exercise or expiration of the warrant, conversion of underlying convertible preferred
stock into common stock and the removal of the antidilution protection.
Change in Fair Value of Subordinated Note Embedded Derivative Liability
Our outstanding subordinated note contains a provision that provides for the payment of an additional 100% principal payment to the holder upon a sale
of our company or substantially all of our assets. This provision is considered an embedded derivative which is remeasured to fair value at each balance sheet date with the corresponding gain or loss
from the adjustment recorded in the statements of operations and comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of settlement or termination
of this provision or the underlying subordinated note.
Other Income
Other income consists primarily of a gain recognized from the settlement of the costs associated with the product recalls with one of our partnered
products. See Note 12 to our annual audited financial statements and Note 9 to our unaudited interim condensed financial statements included elsewhere in this prospectus for more
information about this settlement.
Income Tax Benefit (Expense)
Our income tax benefit (expense) has not been historically significant to our business as we have primarily incurred losses from 2006 through fiscal
2013. As of September 30, 2013, we had federal and state net operating loss carryforwards of $63.2 million and $12.0 million, respectively, for which we have provided a full
valuation allowance (as it is not more likely than not that we will realize the benefit of such net operating losses). The federal net operating loss carryforwards expire at various dates beginning in
2026 and the state net operating loss carryforwards expire at various dates beginning in 2017.
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Results of Operations
The following table sets forth each of our costs and operating expenses as a percentage of our total revenues:
Year Ended
September 30,
Three Months
Ended
December 31,
2012
2013
2012
2013
Percentage of Revenues
Total revenues
100
%
100
%
100
%
100
%
Costs and operating expenses:
Cost of product revenues
57
49
49
50
Cost of contract research and development revenues
24
24
25
34
Research and development expenses
9
11
8
8
General and administrative expenses
11
13
14
17
Amortization of intangible assets
1
1
1
1
Gain on disposal and sale and leaseback of equipment
*
*
*
*
Total costs and operating expenses
102
%
98
%
97
%
110
%
*
Less
than 0.5% of revenues
Comparison of the Three Months Ended December 31, 2012 and 2013
Revenues
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Revenues:
Product revenues
$
9,972
$
8,100
$
(1,872
)
(19
)%
Contract research and development revenues
2,588
2,064
(524
)
(20
)
Other revenues
64
304
240
375
Total revenues
$
12,624
$
10,468
$
(2,156
)
(17
)%
Product revenues decreased $1.9 million, or 19%, for the three months ended December 31, 2013 compared to the same period in 2012. The decrease was primarily
driven by a decrease of $1.0 million in product revenues from sales of Fentanyl TDS during the three months ended December 31, 2013 as the weakening in demand which began in the latter
half of fiscal 2013 continued. The decrease was also impacted by a $0.5 million decrease in Clonidine TDS sales during the three months ended December 31, 2013 resulting from lower
production levels for the quarter on this product. We also experienced a $0.3 million decrease in product revenues of Crest Whitestrips, related to reduced product demand during the three
months ended December 31, 2013. We expect our product revenues from Fentanyl TDS to continue to decline throughout fiscal 2014, based on information provided by Par. In addition, we expect our
product revenues from Clonidine TDS during fiscal 2014 to be lower than they were during fiscal 2013, as a major competitor that had a diminished ability to supply its product for seven months during
fiscal 2013 resumed supply.
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Table of Contents
Contract
research and development revenues decreased $0.5 million, or 20%, for the three months ended December 31, 2013 compared to the same period in 2012. The decrease was primarily
driven by a $1.2 million reduction in revenues related to AG200-15, as commercial-scale equipment and facilities neared completion, and was partially offset by a $0.6 million increase
related to Crest Whitestrips.
Cost of Product Revenues
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Cost of product revenues
$
6,233
$
5,229
$
(1,004
)
(16
)%
Cost of product revenues decreased $1.0 million, or 16%, for the three months ended December 31, 2013 compared to the same period in 2012, primarily as a result of
lower product revenues. While product revenues decreased 19%, cost of product revenues decreased 16%. This difference was primarily due to the smaller decreases for the three months ended
December 31, 2013 of product revenues from products with lower production costs, as well as those with a profit-sharing component.
Cost of Contract Research and Development Revenues
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Cost of contract research and development revenues
$
3,122
$
3,537
$
415
13
%
Cost of contract research and development revenues increased $0.4 million, or 13%, for the three months ended December 31, 2013 compared to the same period in
2012, primarily as a result of an increase in the number of projects in development, which, in turn, resulted in higher direct and indirect labor costs for the three months ended December 31,
2013 compared to the same period in 2012. While contract research and development revenues decreased 20% for the three months ended December 31, 2013 compared to the same period in 2012, cost
of contract research and development revenues increased 13%. Increased cost of contract research and development revenues are primarily a result of increased costs associated with programs that
involve partner reimbursement from milestones to be received in subsequent quarters. The differences in contract research and development revenues versus contract research and development costs are a
function of the specific project activities undertaken in any given period, especially the proportion of those expenses that are reimbursements for pass-through expenses. In addition, revenue
recognition policies may restrict the recognition of certain revenues, while costs continue to be incurred in full. As a result of these revenue timing and expense composition differences, any or all
of our contract research and development projects may not be profitable in certain periods, but may be profitable in others.
Research and Development Expenses
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Research and development expenses
$
1,052
$
861
$
(191
)
(18
)%
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Research and development expenses decreased $0.2 million, or 18%, for the three months ended December 31, 2013 compared to the same period in 2012, primarily as a
result of decreased research and development spending on Corplex Tamsulosin project and MicroCor technology.
General and Administrative Expenses
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
General and administrative expenses
$
1,792
$
1,810
$
18
1
%
General and administrative expenses remained relatively constant during the three months ended December 31, 2013 compared to the same period in 2012.
Interest Expense
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Interest expense
$(1,773
)
$(2,064
)
$(291
)
16
%
Interest expense increased $0.3 million, or 16%, for the three months ended December 31, 2013 compared to the same period in 2012, primarily due to increased
borrowing under our term loan agreement with Capital Royalty. We drew down an additional $6.0 million under this agreement in December 2012.
Change in Fair Value of Subordinated Note Embedded Derivative Liability
Three Months Ended
December 31,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Change in fair value of subordinated note embedded derivative liability
$ —
$(1,029
)
$(1,029
)
nm
We recorded a change in fair value of subordinated note embedded derivative liability of $7.4 million in fiscal 2013 due to the increased probability of a qualifying
transaction that would trigger payment of an additional amount equal to the outstanding principal under the subordinated note.
We
determined that the fair value of the subordinated note embedded derivative feature had decreased by $1.0 million during the three months ended December 31, 2013, primarily due to the
increased likelihood of an initial public offering which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount which results in reducing
the value of the embedded derivative feature. Accordingly, we recorded a net decrease in fair value of subordinated note embedded derivative liability of $1.0 million for the three months ended
December 31, 2013.
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Table of Contents
Comparison of Fiscal 2012 and 2013
Revenues
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Revenues:
Product revenues
$
35,716
$
38,704
$
2,988
8
%
Contract research and development revenues
6,838
10,750
3,912
57
Other revenues
306
816
510
167
Total revenues
$
42,860
$
50,270
$
7,410
17
%
Product revenues increased $3.0 million, or 8%, in fiscal 2013 compared to fiscal 2012 primarily as a result of a $2.8 million increase in product
revenues of Crest Whitestrips as P&G continues to expand the customer base for this product and a $2.7 million increase in product revenues of Clonidine TDS, primarily as a result of Teva's
increased market share resulting from a major competitor's diminished ability to supply its product for seven months during the year. These increases were partially offset by a $1.3 million
decrease in product revenues from sales to one of our partners on a consumer product, with whom we terminated our relationship during fiscal 2013, and a $1.3 million decrease in product
revenues from sales of Fentanyl TDS during fiscal 2013, primarily in the fourth quarter, as we began experiencing a weakening in demand.
Contract
research and development revenues increased $3.9 million, or 57%, in fiscal 2013 compared to fiscal 2012, generally as a result of the increased number of products in development and
increased pass-through costs of third-party vendors, such as materials and supplies. More specifically, the increase was primarily the result of a $2.5 million increase in these revenues
related to our motion sickness patch, $1.3 million increase in these revenues related to AG200-15 and a $1.1 million increase in these revenues related to Crest Whitestrips and beauty
products. These increases were partially offset by a $0.5 million decrease in contract research and development revenues from a partnered development program which was temporarily placed on
hold during fiscal 2013. Our partner restarted the development of this product in the fourth quarter of fiscal 2013.
Cost of Product Revenues
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Cost of product revenues
$
24,360
$
24,828
$
468
2
%
Cost of product revenues increased $0.5 million, or 2%, in fiscal 2013 compared to fiscal 2012 primarily as a result of a $0.2 million increase in
direct and indirect overhead costs and a $0.2 million increase in materials costs associated with the increase in product revenues. While product revenues increased 8% from fiscal 2012 to
fiscal 2013, cost of product revenues increased only 2%. This difference was primarily due to the increase in fiscal 2013 of product revenues from products with lower production costs, as well as
those with a profit-sharing component, thereby resulting in a lower comparative increase in costs for the
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Table of Contents
same
period. In addition, as our unit volumes increased in fiscal 2013, we were able to better leverage our fixed production costs.
Cost of Contract Research and Development Revenues
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Cost of contract research and development revenues
$
10,244
$
11,856
$
1,612
16
%
Cost of contract research and development revenues increased $1.6 million, or 16%, in fiscal 2013 compared to fiscal 2012 primarily due to a
$1.7 million increase in materials, supplies and ancillary equipment costs that we incurred and passed through, generally at our cost, to our partners as revenues in fiscal 2013 related to
certain agreements. While contract research and development revenues increased 57% from fiscal 2012 to fiscal 2013, cost of contract research and development revenues increased only 16%.
In
fiscal 2012, our various MicroCor contract feasibility projects resulted in a decrease in contract research and development revenues of $0.7 million in fiscal 2013 compared to fiscal 2012
and a decrease of $1.6 million in the costs of these projects in fiscal 2013 compared to fiscal 2012. In addition, our contract research and development revenues increased $2.5 million
and $1.1 million for the Teva motion sickness TDS and the P&G Whitestrips projects in fiscal 2013 compared to fiscal 2012, respectively, while the costs of these projects increased
$1.9 million and $0.7 million, respectively, in fiscal 2013 compared to fiscal 2012.
Research and Development Expenses
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Research and development expenses
$
3,966
$
5,496
$
1,530
39
%
Research and development expenses increased $1.5 million, or 39%, in fiscal 2013 compared to fiscal 2012 primarily due to continued expanded research and
development activities related to our MicroCor technology, which were $2.4 million and $5.3 million in fiscal 2012 and fiscal 2013, respectively. This increase was primarily due to a
$1.1 million increase in personnel costs and a $0.8 million increase in overhead costs. These increases were partially offset by a $0.4 million decrease in out-of-pocket costs
associated with specific projects.
General and Administrative Expenses
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
General and administrative expenses
$
4,645
$
6,525
$
1,880
40
%
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General and administrative expenses increased $1.9 million, or 40%, in fiscal 2013 compared to fiscal 2012 primarily due to a $1.9 million increase
in salaries, benefits and bonuses as we began implementing an employee bonus plan and hiring additional personnel in preparation for being a public reporting company, along with a $0.5 million
increase in directors' fees, travel costs, and outside consulting and other services costs. These increases were offset by a decrease of $0.5 million in product liability costs associated with
Fentanyl TDS.
Interest Expense
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Interest expense
$
(5,247
)
$
(7,705
)
$
(2,458
)
47
%
Interest expense increased $2.5 million, or 47%, in fiscal 2013 compared to fiscal 2012 primarily due to increased borrowing under our term loan agreement
with Capital Royalty. We drew down $29.0 million and $6.0 million under this agreement in August 2012 and December 2012, respectively.
Change in Fair Value of Subordinated Note Embedded Derivative Liability
Year Ended
September 30,
2012 to 2013
2012
2013
$ Change
% Change
(Dollars in thousands)
Change in fair value of subordinated note embedded derivative liability
$
—
$
(7,367
)
$
(7,367
)
nm
We recorded a change in fair value of subordinated note embedded derivative liability of $7.4 million in fiscal 2013 due to the increased probability of a
qualifying transaction that would trigger payment of an additional amount equal to the outstanding principal under the subordinated note.
Liquidity and Capital Resources
Since fiscal 2006, we have incurred losses from operations. Only recently have we had positive cash flows from our operations. For fiscal 2013, we
incurred a net loss of $13.9 million and used $1.0 million of cash from operating activities. For the three months ended December 31, 2013, we incurred a net loss of
$2.1 million and used $2.7 million of cash from operating activities. As of December 31, 2013, we had working capital of $6.0 million and an accumulated deficit of
$94.5 million. Our principal sources of liquidity as of
December 31, 2013 were cash and cash equivalents totaling $7.4 million. We hold our cash and cash equivalents in a variety of interest-earning instruments, including investments backed
by U.S. government agencies, corporate debt securities and money market accounts. Since our inception, we have financed our operations primarily with the net proceeds of $27.9 million from the
sale of our convertible preferred stock, excluding the $3.6 million of cash received from our acquisition of StrataGent Life Sciences in 2007 and $105.8 million from borrowings under
various debt arrangements, including lines of credit.
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Table of Contents
Plan of Operations and Future Funding Requirements
Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended September 30, 2013 with respect to this uncertainty. Our ability to
continue as a going concern will require us to obtain additional financing to fund our operations. We believe that the net proceeds from this offering and our existing cash and cash equivalents,
together with interest thereon and our existing line of credit, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions
that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need to raise additional capital following this offering to fund
our operations and continue to support our planned research and development and commercialization activities. The sale of additional equity securities would result in additional dilution to our
stockholders and those securities may have rights senior to those of our common stock. The incurrence of indebtedness would result in increased debt service obligations and could result in operating
and financing covenants that would restrict our operations. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all.
If
we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs
or commercialization efforts, or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to products or product candidates that we would
otherwise seek to commercialize or develop ourselves on terms that are less favorable than might otherwise be available. In addition, our ability to achieve profitability or to respond to competitive
pressures would be significantly limited.
Description of Certain Indebtedness
Our line of credit with our commercial bank, Silicon Valley Bank, or our SVB line, matures on August 31, 2014. The SVB line provides for
borrowings up to $6.0 million and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all of our assets. Advances
under the line of credit are based on 80% of our eligible accounts receivable. The SVB line bears interest at the bank's prime rate (an effective rate of 4.25% as of September 30, 2013 and
December 31, 2013) and provides for a minimum monthly interest charge of $5,000. The SVB line contains a minimum monthly liquidity covenant of $2.0 million of net cash on deposit with
Silicon Valley Bank, with which we were in compliance as of September 30, 2013 and December 31, 2013.
Our
$35 million term loan agreement with Capital Royalty requires interest to be paid quarterly at a simple annual rate of 15%, and all outstanding principal be repaid in four equal quarterly
payments beginning September 30, 2016 and ending on June 30, 2017. Pursuant to the agreement, we plan to continue deferring cash payment of 3.5% on the outstanding principal from the
first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes. As of December 31, 2013, the principal amount outstanding under the term
loan agreement was $36.7 million. The amounts outstanding under the term loan agreement are collateralized by all of our assets and the agreement provides for a prepayment penalty if we choose
to repay principal prior to maturity, or upon other specified events, including a change of control. The agreement provides for financial covenants for quarterly minimum revenues, beginning
September 30, 2014 and minimum liquidity of $2.0 million, with which we were in compliance as of September 30, 2013 and December 31, 2013. We refer to the term loan
agreement with Capital Royalty and the SVB line collectively as our senior debt.
In
June and November 2008, we entered into certain note and warrant purchase agreements pursuant to which we issued to certain investors, including Essex Woodlands, one of our principal
stockholders, secured convertible promissory notes with an aggregate principal amount of $20.0 million, $10.0 million of which we repaid in August 2012. The amounts outstanding
under the convertible notes are collateralized by a
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Table of Contents
security
interest in all of our assets, subordinated to the interests of our senior debt. In September 2012, we amended and restated these notes and delivered to the noteholders new amended and
restated secured convertible promissory notes with aggregate remaining principal amounts of $10.0 million, which matures on July 1, 2017. We refer to these as our convertible notes.
Interest accrues on these convertible notes at a rate of 10% per annum, and pursuant to an intercreditor agreement, we are not permitted to pay interest on these notes until maturity.
In
May 2009, we entered into a note purchase agreement pursuant to which we issued to Essex Woodlands a subordinated secured promissory note with an aggregate principal amount of
$13.0 million. The amount outstanding under the subordinated note is collateralized by a security interest in all of our assets, subordinated to the interests of our senior debt. In
September 2012, we amended and restated this note and delivered to Essex Woodlands a new amended and restated subordinated secured promissory note with the same aggregate principal amount,
which matures on July 1, 2017. We refer to this as our subordinated note. Interest accrues at a rate of 5% per annum, and pursuant to an intercreditor agreement, we are not permitted to pay
interest on this note until maturity. This subordinated note provides for an additional payment equal to 100% of the principal amount of the note to the holder upon a sale of our company or
substantially all of our assets.
The
aggregate principal amounts and accrued interest of $19.1 million and $15.9 million under the convertible notes and the subordinated note, as of December 31, 2013, will be
converted into shares of our capital stock in connection with the recapitalization described in "Related Party Transactions—Recapitalization."
We
also have several other credit facilities under which we have borrowed funds, including capital leases for equipment purchases, notes payable with lessors for tenant improvements made to leased
facilities, and notes payable used to fund the annual insurance premium for our product liability policies. See Note 6 to our annual audited financial statements and Note 4 to our
unaudited interim condensed financial statements included elsewhere in this prospectus for further details.
In
connection with certain of our partner arrangements, our partners purchase equipment that we use in the production of their products. This reduces our need for financing and lowers the cost of
manufacturing these products for these partners, but also limits our ability to use this equipment for other partners' products.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended
September 30,
Three Months Ended
December 31,
2012
2013
2012
2013
(In thousands)
(In thousands)
Cash provided (used) by operating activities
$
40
$
(982
)
$
(2,768
)
$
(2,679
)
Cash used in investing activities
(2,360
)
(7,939
)
(3,486
)
(1,641
)
Cash provided (used) by financing activities
13,992
10,257
6,035
(1,845
)
Cash Flows from Operating Activities
Cash used by operating activities for the three months ended December 31, 2013 was $2.7 million and was primarily driven by cash
provided by changes in our working capital accounts and our net loss adjusted for non-cash items. The net loss of $2.1 million reflects non-cash charges of $1.0 million related to the
change in fair value of the subordinated debt embedded derivative, $0.4 million of property and equipment depreciation, $0.1 million in amortization of intangible assets and
$0.1 million in amortization of the debt
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Table of Contents
discount
and issuance costs. The $0.3 million decrease in net operating assets was primarily due to a $1.4 million increase in accounts receivable and unbilled accounts receivable, a
$0.7 million increase in prepaid and other current assets, and a $0.3 million decrease in recall liability. These cash outflows were offset by a $1.3 million increase in accrued
expenses and other current liabilities, $0.4 million in decreased inventories, and $0.4 million in non-cash interest associated with our convertible and subordinated notes.
Cash
used by operating activities for the three months ended December 31, 2012 was $2.8 million and was primarily driven by cash provided by adjustments in our working capital accounts
and our net loss adjusted for non-cash items. The net loss of $1.4 million reflects non-cash charges of $0.5 million of property and equipment depreciation, $0.1 million in
amortization of intangible assets, $0.1 million in amortization of the debt discount and issuance costs, and $0.2 million of stock-based compensation. The $2.2 million increase in
net operating assets was primarily due to a $2.4 million increase in accounts receivable, a $0.3 million increase in inventories, $0.5 million in decreased accounts payable, and
$0.1 million decrease in accrued expenses and other current liabilities. These cash outflows were partially offset by a $0.7 million increase in deferred contract revenue, and
$0.4 million in non-cash interest associated with our convertible and subordinated notes.
Cash
used by operating activities for fiscal 2013 was $1.0 million and was primarily driven by cash provided by adjustments in our working capital accounts and our net loss adjusted for
non-cash items. The net loss of $13.9 million reflects non-cash charges of $7.4 million related to the change in fair value of the subordinated debt embedded derivative,
$1.9 million of property and equipment depreciation, $0.5 million in amortization of intangible assets, $0.5 million in amortization of the debt discount and issuance costs, and
$0.3 million of stock-based compensation. The $2.3 million increase in net operating assets was primarily due to a $1.7 million increase in non-cash interest associated with our
convertible and subordinated notes. These increases were partially offset by a $0.9 million decrease in accounts payable.
Cash
provided by operating activities for fiscal 2012 was $40,000 and was primarily driven by cash provided by adjustments in our working capital accounts and our net loss of $5.4 million
adjusted for certain non-cash items. The net loss includes non-cash charges of $2.0 million for property and equipment depreciation, $0.5 million in
amortization of intangible assets, $1.0 million in amortization of the debt discount and issuance costs, and $3.0 million in non-cash consideration associated with the settlement of our
liability to Actavis related to a product recall. The $5.6 million increase in net operating assets was primarily due to a $0.9 million decrease in accounts receivable, a
$3.2 million increase in accrued interest payable and a $3.5 million increase in deferred contract revenues, resulting from payments received from partners under development agreements,
including $2.8 million from Agile in connection with the buildout of the commercial manufacturing facility, partially offset by a $1.3 million decrease in accounts payable.
Cash Flows from Investing Activities
Cash used in investing activities for the three months ended December 31, 2013 was $1.6 million, consisting primarily of capital
expenditures of $1.5 million for equipment and leasehold improvements to support operations and expenditures of $0.1 million relating to acquisition of patents and licensing rights.
Cash
used in investing activities for the three months ended December 31, 2012 was $3.5 million, consisting primarily of capital expenditures of $3.4 million for equipment and
leasehold improvements to support operations and expenditures of $0.1 million relating to acquisition of patents and licensing rights.
Cash
used in investing activities for fiscal 2013 was $7.9 million, consisting primarily of capital expenditures of $7.2 million for equipment and leasehold improvements to support
operations and expenditures of $0.7 million relating to acquisition of patents and licensing rights.
Cash
used in investing activities for fiscal 2012 was $2.4 million, consisting primarily of capital expenditures of $1.9 million for equipment to support operations and expenditures of
$0.5 million relating to acquisition of patents and licensing rights.
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For
fiscal 2014, we expect to invest approximately $6.4 million in capital equipment and leasehold improvements.
Cash Flows from Financing Activities
Cash used in financing activities for the three months ended December 31, 2013 was $1.8 million, consisting of repayments of
$1.9 million under our SVB line and $0.5 million of repayments of principal of our long-term debt and capital lease obligations. These decreases were partially offset by
$0.5 million of drawdowns under our SVB line.
Cash
provided by financing activities for the three months ended December 31, 2012 was $6.0 million, consisting of $6.0 million in proceeds from borrowings under our term loan
agreement, a $0.6 million tenant improvement loan and a $1.0 million increase from drawdowns under our SVB line. These increases were partially offset by our repayments of
$1.1 million under our SVB line and $0.4 million of repayments of principal of our long-term debt and capital lease obligations.
Cash
provided by financing activities for fiscal 2013 was $10.3 million, consisting of $7.2 million in proceeds from borrowings, including $6.0 million drawn under our term loan
agreement, a $2.3 million increase from proceeds under capital leases and $5.8 million of drawdowns under our SVB line. These increases were partially offset by our repayment of
$3.5 million under our SVB line, $1.4 million on principal of our long-term debt and capital lease obligations
Cash
provided by financing activities for fiscal 2012 was $14.0 million consisting primarily of $36.5 million in net proceeds from long-term debt financings, including
$29.0 million drawn under our term loan agreement, and $24.7 million of drawdowns from our then existing line of credit. These increases were partially offset by our repayment of
$26.3 million under our then existing line of credit, $10.0 million of principal on convertible notes and $9.3 million of principal on our long-term debt and capital lease
obligations as well as payment of $1.7 million for transaction costs related to our long-term debt. We used a portion of the proceeds from our term loan agreement to repay $10.0 million
of our convertible notes and $5.7 million of other long-term debt.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of September 30, 2013:
Payments Due by Period
Contractual Obligations:
Less Than
1 Year
1 to 3
Years
3 to 5
Years
More Than
5 Years
Total
(In thousands)
Total debt obligations
$
4,330
$
9,219
$
49,762
$
374
$
63,685
Interest on total debt obligations
7,229
15,028
6,561
64
28,882
Operating lease obligations
974
1,366
1,210
4,276
7,826
Capital lease obligations
1,029
1,580
72
—
2,681
Total contractual obligations
$
13,562
$
27,193
$
57,605
$
4,714
$
103,074
The table above excludes a recall liability of $4.8 million as of September 30, 2013 relating to a settlement reached with Actavis for Fentanyl
TDS. See Note 12 to our annual audited financial statements included elsewhere in this prospectus.
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In addition, the table above also excludes any potential payments resulting from the provision in our subordinated debt that provides for the payment of an additional 100%
principal payment to the holders upon a sale of our company or a sale of substantially all of our assets and any increase in fair value of the note associated with the modification of the note related
to the recapitalization. The table also above excludes payments in kind on the term loan agreement and interest on the subordinated and convertible notes. See Note 6 to our annual audited
financial statements included elsewhere in this prospectus.
As
of September 30, 2013, we had outstanding commitments to acquire $0.4 million of capital equipment.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Segment Information
We have one business activity and operate in one reportable segment.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities as follows:
Interest Rate Risk
We had cash and cash equivalents and short-term investments of $7.4 million as of December 31, 2013. Our cash and cash equivalents are
held in a variety of interest-earning instruments, including investments backed by U.S. government agencies, corporate debt securities and money market accounts. Such interest-earning instruments
carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding debt of $65.9 million as of December 31, 2013, of
which $2.7 million is due within 12 months. Amounts outstanding under our SVB line carry a variable interest rate. A hypothetical 10% change in interest rates during any of the periods
presented would not have had a material impact on our financial statements.
The
primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative
purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we
anticipate being exposed to, material risks due to changes in interest rates.
Critical Accounting Polices and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of
these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we could have reasonably used different accounting estimates, and in other
instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. To the extent that there are material
differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the
accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.
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Revenue Recognition
We generate revenues from agreements for the development and commercialization of our products. The terms of these agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales, profit sharing, and royalties. Where applicable multiple element
arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This determination is generally based on whether
any deliverable has stand-alone value to the customer. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement consideration to identified units of
accounting. The selling price used for each unit of accounting will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific nor third-party evidence is available.
We
recognize revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable; and collectability is
reasonably assured. During fiscal 2012 and 2013 and for the three months ended December 31, 2012 and 2013, we recognized revenues from the sale of products, related royalties and profit sharing
on our partners' sales of our products as well as, from contract research and development activities, and from other revenues.
Product
revenues make up a majority of our total revenues during fiscal 2012 and 2013, comprising 83% and 77% of total revenues, respectively. During the three months ended December 31, 2012
and 2013, product revenues comprised 79% and 77% of total revenues, respectively. Product revenues consist of product sales, royalties and profit sharing we receive from our marketing partners.
We
generally recognize revenues from product sales as products are shipped and title and risk of loss passes to the marketing partner. We have royalty and profit sharing agreements pursuant to which
we earn revenues based on the amount of product sold, on the amount of profits earned by our marketing partners' sales of such products. We generally recognize royalty and profit sharing revenues at
the time our marketing partners report product sales to us.
Typically,
we have not granted licenses to partners at the beginning of our development arrangements and, thus, there are no delivered items separate from the research and development services
provided. As such, upfront payments are recorded as deferred revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance
that is consistent with the terms of the research and development obligations contained in the respective agreements.
We
generally recognize revenues related to research and development funding received as the related services or activities are performed in accordance with the contract terms. To the extent that
agreements specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified
rates in the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally,
all of our agreements provide for reimbursement to us of our third-party expenses, and we bill for such reimbursable expenses as revenues as they are incurred.
We
use the milestone method for recognizing revenues in agreements with contingent payments. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is
recognized in its entirety in the period in which the milestone is achieved.
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Impairment of Long-Lived Assets
We assess the impairment of long-lived assets, such as property and equipment subject to depreciation and amortization, when events or changes in
circumstances indicate that their carrying amount may not be recoverable. Among the factors and circumstances we considered in determining recoverability are: (i) a significant adverse change
in the extent to which, or manner in which, a long-lived asset is being used or in its physical condition; (ii) a significant adverse change in legal factors or in the business climate that
could affect the value of a long-lived asset, including an adverse action or assessment by a regulator; (iii) an accumulation of costs significantly in excess of the amount originally expected;
and (iv) current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with the
use of a long-lived asset. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds
the fair value of the asset. We did not record any impairment losses during fiscal 2012 and 2013 or during the three months ended December 31, 2013.
Convertible Preferred Stock Warrants
We account for certain warrants to purchase shares of our convertible preferred stock as liabilities at fair value as we have determined that some of
these warrants are derivative instruments because they contain antidilution provisions that protect the holders from certain equity issuances at a price below the original issue price of the
underlying security. We remeasure these warrants to fair value at each balance sheet date, and recognize any change in the fair value as a change in the warrant liability in our statements of
operations and comprehensive loss. We estimated the fair value of these warrants at the respective balance sheet dates using the Option Pricing Model, or OPM, in fiscal 2012, and the
Probability-Weighted Expected Return Model, or PWERM, in fiscal 2013 and as of December 31, 2013. We use a number of assumptions to estimate the fair value including the likelihood of various
scenarios, the expected volatility and the fair value of the underlying stock under each scenario.
These
assumptions are inherently subjective, and the fair value of these warrants may have differed significantly had we used different assumptions. We will continue to adjust this warrant liability
for changes in fair value until the earliest of an exercise or expiration of the warrants, the conversion of underlying convertible preferred stock into common stock, and the removal of the
antidilution protection.
Subordinated Note Embedded Derivative Liability
During fiscal 2009, we issued a subordinated note in the aggregate principal amount of $13.0 million. This subordinated note contains a
provision that provides for the payment of an additional payment equal to 100% of the principal amount of the note to the holder upon a sale of our company or substantially all of our assets. This
provision was determined to be an embedded derivative requiring bifurcation and separate accounting. The embedded derivative liability is remeasured to fair value at each balance sheet date with the
corresponding gain or loss from the adjustment recorded in the statements of operations and comprehensive loss. We will continue to adjust the liability for changes in fair value until the earlier of
settlement or termination of this provision or repayment of the underlying subordinated note.
The
fair value of the embedded derivative was measured with the PWERM valuation methodology. Under this methodology, fair value is primarily driven by the assessment of the probability and timing of
scenarios that could result in the anticipated sale of our company or its significant assets prior to the note's maturity, which would trigger the payment of the additional amount equal to the
outstanding principal of the subordinated note. At each balance sheet date from the date of issuance through September 30, 2012, the likelihood of a sale of our company or our significant
assets that would trigger such a payment prior to the note's maturity was evaluated to be extremely low. As a result, the fair value of the embedded derivative was immaterial and we did not record a
value through fiscal 2012. In fiscal 2013, several factors resulted in significantly increased uncertainty regarding our business, including a significant delay in the planned 2013 launch of the
AG200-15 contraceptive patch product. Primarily due to the resulting delay and uncertainty
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of
the timing of the launch of this product, we determined that we would experience a significant reduction in our projected cash flows as well as a reduction in the probability that we would have
adequate cash flow to finance the planned expansion of our operations and repay or refinance the debt without additional financing. Accordingly, the probability of transactions that would trigger the
embedded derivative increased greatly in fiscal 2013. This increased probability caused the estimated fair value of the embedded derivative to increase to $7.4 million. This change in the
estimated fair value of $7.4 million was, therefore, recorded to change in fair value of subordinated note embedded derivative in fiscal 2013.
We
determined that the fair value of the subordinated note embedded derivative feature had decreased by $1.0 million during the three months ended December 31, 2013, primarily due to the
increased likelihood of an initial public offering which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount that results in reducing
the value of the embedded derivative feature. Accordingly, we recorded a net decrease in fair value of subordinated note embedded derivative liability of $1.0 million for the three months ended
December 31, 2013.
As
part of the recapitalization described in Note 4 to the unaudited interim condensed financial statements for the three months ended December 31, 2013, in December 2013 the
subordinated note was modified to provide that in the event of a qualifying initial public offering or equity financing, the note will automatically convert into 34.2 million shares of common
stock or the equivalent amount of preferred stock. As this represents a substantial modification of the debt, it is accounted for as an extinguishment. Accordingly, the book value of the debt prior to
the conversion was removed from the financial statements and the fair value of the debt after the modification, including the value of the conversion feature, of $16.5 million was recorded. As
the holder of the subordinated debt controls the majority of our equity and can appoint the majority of our board of directors, the modification of the debt is considered a transaction with owners.
Accordingly, the difference between the book value of the debt prior to the modification and the fair value of the debt after modification was recorded as a $3.5 million reduction in additional
paid in capital.
The
fair value of the subordinated note was measured with the PWERM valuation methodology. Under this methodology, the fair value of the note is driven by the cash flows calculated under various
scenarios using the estimated probability and timing of each scenario, as determined by our board of directors. The scenarios and the estimated probability and timing used in calculating the fair
value of the notes were as follows: (i) 25% to a scenario assuming our liquidation, or a liquidation scenario, (ii) 35% to a scenario assuming an initial public offering, or an
IPO scenario, and (iii) 40% to a scenario assuming a sale of our company, or an M&A scenario.
Stock-Based Compensation
Stock-based compensation expense is measured based on the grant-date fair value of the stock-based awards. We estimated the fair value of each
employee stock option on the date of grant using the Black-Scholes option-pricing model. We recognize compensation costs for all employee stock-based compensation awards that are expected to vest over
the requisite service period of the awards, which is generally the awards' vesting period. These amounts are reduced by an estimated forfeiture rate.
The
Black-Scholes option-pricing model requires the use of assumptions, some of which are highly subjective and complex. The assumptions include:
•
Expected term.
The expected term
represents the period that our stock-based awards are expected to be outstanding before exercise or cancellation. Through December 31, 2013, our historical share option exercise experience did
not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data points, and we estimated the expected term by using the simplified method;
•
Risk-free interest rate.
The
risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent term;
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•
Expected volatility.
The expected
volatility is derived from the historical stock volatilities of several comparable publicly-traded peers over a period approximately equal to the expected term of the awards because we have limited
information on the volatility of our common stock since we have no trading history. When making the selections of the comparable publicly-traded peers to be used in the volatility calculation, we
considered the size, operational and economic similarities to our principal business operations; and
•
Expected dividend yield.
The
expected dividend yield is based on our current expectations about our anticipated dividend policy, which is that we will not pay dividends for the foreseeable future.
We
did not grant any stock options in fiscal 2012. The fair value of each employee stock option granted during fiscal 2013 was estimated at the date of grant using a Black-Scholes option-pricing model
with the following assumptions:
Expected term (in years)
2.50 - 6.08
Risk-free interest rate
0.70% - 1.38%
Expected volatility
71% - 75%
Expected dividend rate
0%
We recorded stock-based compensation expense of $0.1 million, $0.3 million and $56,000 for fiscal 2012, 2013 and the three months ended
December 31, 2013, respectively. We expect to continue to grant stock options and other equity-based awards in the future and, to the extent that we do, our stock-based compensation expense
recognized in future periods will likely increase. We did not grant any stock options during the three months ended December 31, 2013.
Significant factors, assumptions and methodologies used in determining the estimated fair value of our common stock
We are also required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations
using the Black-Scholes option-pricing model. Our board of directors, with the assistance of management, determined the fair value of our common stock on each grant date in accordance with the
guidelines outlined in the
American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as
Compensation
. The fair value of our common stock on the date of grant is determined by taking into account several factors, including the following:
•
contemporaneous valuations performed by unrelated third-party specialists;
•
indebtedness;
•
rights, preferences, and privileges of our convertible preferred stock
relative to those of our common stock;
•
actual operating and financial performance;
•
present value of future cash flows;
•
likelihood of achieving a liquidity event, such as an initial public
offering or a sale of our company;
•
given prevailing market conditions and the nature and history of our
business;
•
illiquidity of stock-based awards involving securities in a private company;
•
experience of our management team;
•
market multiples of comparable companies in our industry;
•
stage of development;
•
industry information such as market size and growth; and
•
macroeconomic conditions.
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In
determining a fair value for our common stock, we generally considered two valuation approaches to determine the enterprise value of our business: the income approach and the market approach.
The
income approach estimates the fair enterprise value of a company based on the present value of the company's future estimated cash flows and the residual value of the company beyond the forecast
period. These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate, to reflect the
risks inherent in the company achieving these estimated cash flows. The discount rate used in our third-party valuations was based primarily on benchmark venture capital studies of discount rates for
other companies in similar stages of development. The income approach was a significant component of all of the valuations noted in this discussion.
The
market approach estimates the fair enterprise value of a company by calculating and applying market multiples of comparable publicly traded companies in the biotechnology and pharmaceutical
industries or similar lines of business. The market multiples are based on key metrics implied by the enterprise values of our comparable publicly-traded peers and, for our valuations we primarily
utilized the last twelve months and projected twelve months revenue multiples from our comparable publicly-traded peers in the market approach. These observed multiples were averaged and then applied
to our historical twelve months and projected revenues to arrive at an enterprise value. We deemed multiples of revenues to be the most relevant in our industry as neither we nor many of our peer
companies have reached normalized profitability or generated positive historical profit thus making the application of profit based multiples less reliable.
Certain
items as of the valuation date, such as the current balance of cash and cash equivalents, net present value of net operating loss carryforwards, or NOLs, and estimated capital expenditures,
were added to or deducted from the enterprise value in order to determine the equity value under each of the valuation approaches. The equity values determined by these valuation approaches were then
weighted to determine the aggregate equity value of our business.
The
resulting equity values were then allocated to the common stock using either OPM or PWERM.
The
OPM treats common stock and convertible preferred stock as call options on a business, with exercise prices based on the liquidation preference of the convertible preferred stock. Therefore, the
common stock has value only if the funds available for distribution to the common stockholders exceeds the value of the total liquidation preference of the preferred stock at the time of a liquidity
event such as a merger, sale or initial public offering, assuming the business has funds available to make a liquidation preference meaningful and collectible by the preferred stockholders. The common
stock is modeled to be a call option with a claim on the business at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OPM uses the
Black-Scholes option-pricing model to value the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that lattice or scenario modeling would
be highly speculative.
The
PWERM involves a forward-looking analysis of the possible future outcomes of a company. This method is particularly useful when discrete future outcomes can be predicted at a high confidence level
with a probability distribution. We began using the PWERM as a component of the December 31, 2013 valuation as a result of the increasing likelihood of the occurrence of certain discrete
events, including the possibility of an initial public offering and improving market conditions.
September 30, 2012 valuation
We obtained an independent third-party valuation as of September 30, 2012 to assist our board of directors in determining the fair value of our
common stock on subsequent grant dates. The September 30, 2012 valuation was prepared on a minority, non-marketable interest basis. The aggregate enterprise value was determined using a
combination of the market approach and income approach. In applying the guideline public company method of the market approach, we analyzed the financial performance of our comparable publicly-traded
peers. We utilized multiples of the trailing twelve months revenues and research and
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development
expenses of our comparable publicly-traded peers as the valuation metric for this approach, and applied such metrics to our forecasted revenues and research and development expenses.
Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value, and our debt was then subtracted, in order to
determine our equity value under the guideline public company method of the market approach.
Under
the income approach, forecasts were prepared for fiscal 2013 through fiscal 2020. The residual value was derived by applying a peer group multiple to the estimated earnings before interest,
taxes, depreciation and amortization, or EBITDA, for the fiscal 2020 forecast. The estimated debt-free cash flow forecasts and residual value were then discounted to a present value. Thereafter, the
current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value, and our debt was then subtracted in order to determine our
equity value under the income approach.
The
equity values determined under the market and income approaches were each weighted by 50% as our board believed that it was important to balance the inherent strengths and weaknesses of each
approach. The aggregate equity value was then allocated to the common stock utilizing an OPM with the following assumptions: a time to a liquidity event of 2.0 years, a risk-free rate of 0.25%,
dividend yield of 0%, and volatility of 70% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our comparable publicly-traded peers. We then
applied a marketability discount of approximately 38% to the results from the OPM to determine the fair value of the common stock to be $0.22 per share as of September 30, 2012.
December 31, 2013 valuation
We obtained an independent third-party valuation as of December 31, 2013 to assist our board of directors in determining the fair value of our
common stock on subsequent grant dates. The December 31, 2013 valuation was prepared on a minority, non-marketable interest basis for three different scenarios — an IPO
scenario, an M&A scenario, and a liquidation scenario.
The
enterprise value for the M&A scenario was determined assuming a sale in 2.25 years and was estimated using a combination of the market approach and the income approach. In applying the
guideline public company method of the market approach, we analyzed the financial performance of our comparable publicly listed peers. We utilized multiples of the trailing 12 months revenue and
research and development expenses of our comparable publicly listed peers as the valuation metric for this approach and applied such metrics to our own forecasted revenues and research and development
expenses. Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the valuation date were added to the enterprise value in order to determine our equity value
under the guideline public company method of the market approach.
Under
the income approach, forecasts were prepared for fiscal 2014 through fiscal 2018. The residual value was derived from an estimated EBITDA multiple derived from the fiscal 2018 forecast. The
estimated debt-free cash flow forecasts and residual value were then discounted to a present value. Thereafter, the current balance of cash and cash equivalents and net present value of NOLs as of the
valuation date were added to the enterprise value in order to determine our equity value under the income approach.
The
equity values determined under the market and income approaches were each weighted by 50% as the board believed at the time that it was important to consider the inherent strengths and weaknesses
of each approach for the M&A scenario fair value. The aggregate equity value was then allocated to the common stock utilizing an OPM with the following assumptions: a time to a liquidity event of
2.25 years, a risk-free rate of 0.48%, dividend yield of 0%, and volatility of 70% over the time to a liquidity event, which was calculated based on the volatility of the common stock of our
comparable publicly listed peers.
The
enterprise value for the liquidation scenario was based on a 25% discount from the enterprise value determined for the M&A scenario assuming a sale in nine months. The enterprise value for the IPO
scenario
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is
based on expected future equity value assuming the completion of an initial public offering in nine months based on current market conditions and outlook and equity values recognized in similar
initial public offerings.
We
then utilized the PWERM approach to determine the fair value of our common stock. The per share fair values from the three scenarios were weighted based on our board of directors' estimate of the
probability of the potential future outcomes as follows: 25% to the liquidation scenario, 35% to the IPO scenario, and 40% to the M&A scenario. We then applied a marketability discount of
approximately 23% to the results from the weighting to determine the fair value of the common stock to be $0.41 per share on a minority, non-marketable basis.
Option grants
The following table summarizes stock awards granted to our employees since October 1, 2012:
Grant date
Number of
common shares
underlying options
granted
Exercise
price per
common share
Estimated
fair value
per share of
common stock
November 12, 2012
1,342,938
$
0.22
$
0.22
December 13, 2012
4,477,968
0.22
0.22
February 20, 2013
1,962,879
0.22
0.22
February 28, 2013
1,734,322
0.22
0.22
April 4, 2013
514,500
0.22
0.22
January 26, 2014
400,000
0.41
0.41
January 27, 2014
4,318,000
0.41
0.41
The estimated fair value per share of the common stock in the table above represents the determination by our board of directors of the estimated fair value of
our common stock as of the date of each grant. In establishing this exercise price, at each of these grant dates our board of directors considered input from management, the most recent independent
valuation of our common stock, as well as other factors, including:
•
changes in management, including the addition of a new Vice President of
Business Development, in the second quarter of fiscal 2013;
•
Agile's receipt of a Complete Response Letter from the FDA in February 2013
indicating that its Phase 3 studies would not be sufficient for approval of AG200-15, in the time frame previously anticipated;
•
the impact of significant ongoing expenses associated with research and
development associated with our products under development;
•
anticipated declines in product revenues from the Clonidine TDS and Fentanyl
TDS products in light of various market conditions;
•
the continued lack of liquidity of our common stock as a private company;
•
the absence of any capital raising transactions during this period;
•
the amount and terms of our outstanding indebtedness;
•
the rights, preferences and privileges of our preferred stock as compared to
those of our common stock, including the liquidation preferences of our preferred stock; and
•
our progress towards an initial public offering, including discussions with
investment bankers and an organizational meeting in October 2013. The impact of the progress towards an initial public offering was also noted in the change in valuation methodologies from OPM to
PWERM. The change from OPM to PWERM is considered to be significant as such a change will generally increase valuations
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because
higher prices tend to be allocated to IPO scenarios than to liquidation scenarios and other scenarios. This is primarily because non-IPO scenarios allocate a large portion of the equity value
to the convertible preferred stock to incorporate higher aggregate liquidation preferences. In the IPO scenario, however, the equity value is allocated pro rata among the shares of common stock and
each series of convertible preferred stock, which causes the common stock to have a higher relative value per share than it would under a non-IPO scenario.
As
a result of the foregoing analyses, our board of directors determined the fair value of our common stock to be at $0.22 per share at each of the grant dates from November 2012 through April 2013
and $0.41 per share at each of the grant dates in January 2014.
We
granted options to purchase 1,342,938 shares of our common stock on November 12, 2012. These options were granted pursuant to an option exchange program which allowed for the exchange of all
outstanding stock options to acquire common stock granted under our 2002 Stock Option Plan with an exercise price of $0.50 or more per share held by current employees and service providers for new
stock options to be granted under our 2012 Equity Incentive Plan at an exercise price per share of $0.22 and a term of five years. Because the cancelled options were all fully vested as of the option
exchange date, we recognized an incremental charge in the amount of $0.1 million in fiscal 2013 as a result of the modification.
Income Taxes
We are subject to income taxes in the United States and in the states of California and Michigan, and we use estimates in determining our provision
for income taxes. We determine our provision for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on temporary differences between the financial
reporting and income tax basis of assets and liabilities using statutory rates. This process requires us to project our current tax liability and estimate our deferred tax assets and liabilities,
including net operating losses and tax credit carryforwards. In assessing the need for a valuation allowance, we considered our recent operating results, future taxable income projections and feasible
tax planning strategies. We have provided a full valuation allowance against our net deferred tax assets at September 30, 2012 and 2013 and at December 31, 2013.
We
account for uncertain tax positions recognized in the financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. We did not have any recorded liabilities for uncertain tax positions as of September 30, 2012 or 2013 or December 31, 2013.
Newly Adopted Accounting Pronouncements
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to
private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised
accounting standards as other public companies that are not "emerging growth companies."
In
May 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2011-04, Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards, or IFRS. This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair
value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and
enhances the disclosure requirements particularly for Level III fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011,
with early adoption prohibited. The adoption of this standard on October 1, 2012 did not have an impact on our financial statements.
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In
June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which requires an entity to present total comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. The adoption of this guidance did not have an impact on our financial statements as our net loss
and comprehensive loss was the same for all periods presented.
In
April 2011, the FASB issued new accounting guidance relating to the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or
redeem financial assets before their maturity. The guidance addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor
(i.e., seller) has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance was effective, on a prospective basis, for new transactions or
modifications to existing transactions on October 1, 2012. The adoption of this new guidance did not have an impact on our financial statements.
In
February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial
reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive
income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is
required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December 15, 2012. This new guidance
impacts how we report comprehensive income only, and will have no effect on our results of operations, financial position or liquidity upon its required adoption on October 1, 2013.
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BUSINESS
Overview
We are a commercial stage biopharmaceutical company focused on the development, manufacture and commercialization of specialty pharmaceutical products
that leverage our broad experience in transdermal and transmucosal delivery systems. Together with our partners, we have successfully developed six marketed products in the prescription drug and
consumer markets, and we are the sole commercial supplier of each of those products for our marketing partners. These marketed products are Clonidine Transdermal Delivery System, or TDS, Fentanyl TDS
and four Crest Advanced Seal Whitestrips products. We use our novel transdermal and transmucosal approaches to bring new products to markets with significant opportunities. Our development platforms
enable transdermal delivery of large molecules, or biologics, including vaccines, peptides and proteins, as well as small molecules that are otherwise difficult to deliver in a transdermal dosage
form. Our
pipeline includes three partnered products that are the subject of pending drug marketing applications to the U.S. Food and Drug Administration, or FDA. In addition, we have 12 partner- or self-funded
programs at earlier stages.
Since
1999, we have built significant know-how and experience in the development, scale-up and manufacture of complex specialty products and have formed relationships with our partners that include
both the development of new product formulations and our manufacture of the resulting products. Our partners include The Procter & Gamble Company, or P&G, Par Pharmaceutical, Inc., Teva
Pharmaceuticals USA, Inc. and Agile Therapeutics, Inc., as well as several other multinational pharmaceutical companies. We have the capability to develop and manufacture our own product candidates
and are one of only a few independent companies that develops and manufactures transdermal products for other parties. We believe our proprietary manufacturing processes, know-how and custom equipment
give us a distinct competitive advantage over other pharmaceutical, consumer products and manufacturing companies.
Transdermal
drug delivery is the transport of drugs through the skin for absorption into the body. We have developed two proprietary technology platforms, Corplex and MicroCor, that we believe offer
significant competitive advantages over existing transdermal approaches. Corplex and MicroCor are designed to be adapted broadly for use in multiple drug categories and indications. We use our Corplex
technology to create advanced transdermal and transmucosal systems for small molecules that utilize less of the active ingredient while achieving the same or better therapeutic effect, that can adhere
well to either wet or dry surfaces, and that can hold additional ingredients required to aid the diffusion of low-solubility molecules through the skin without losing adhesion. Our MicroCor technology
is a biodegradable microstructure system currently in development that enables the painless and convenient delivery of biologics that otherwise must be delivered via injection. Biodegradable
microstructures integrate drug molecules and a biocompatible polymer. With slight external pressure, the microstructures penetrate the outer layers of the skin and dissolve to release the drug for
local or systemic absorption. MicroCor is designed to expand the market for transdermal delivery of biologics, which cannot currently be delivered by other FDA-approved transdermal technologies.
In
addition to commercialized products, we have a number of products in late stages of development. The most advanced clinical stage product in our pipeline is AG200-15, which is in Phase 3
development by our partner Agile. AG200-15 is a combination hormonal contraceptive patch designed to deliver two hormones, ethinyl estradiol and levonorgestrel, at levels comparable to low-dose oral
contraceptives, through the skin in an easy-to-use format over seven days. Agile has filed a New Drug Application, or NDA, for approval of this product by the FDA, which is required before marketing a
new drug in the United States. The FDA has indicated that Agile's NDA was not sufficient for approval as originally submitted. Agile is preparing to conduct an additional Phase 3 clinical trial
based on this guidance, and intends to supplement its NDA with the results of the additional Phase 3 clinical trial. Based on market research conducted by Agile, AG200-15 has the potential to
reach a peak market share of 9% of hormonal contraceptive prescriptions in the United States. Based upon IMS data, Agile estimates that each percentage point of market share of
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hormonal
contraceptive prescriptions in the United States currently represents approximately $108 million of annual gross sales.
Additional
therapeutic programs utilizing our proprietary technologies are progressing through our pipeline at earlier stages. We have advanced the following Phase 2-ready, self-funded programs
through Phase 1 pharmacokinetic clinical studies:
•
A MicroCor transdermal system designed to deliver parathyroid hormone, or
hPTH(1-34), a peptide for treating osteoporosis that is currently available only in a refrigerated injectable form; and
•
A Corplex transdermal patch designed to deliver tamsulosin for treating
patients with benign prostate hyperplasia, or BPH, with a controlled dose over several days to reduce side effects compared to currently marketed products.
We
are not aware of any FDA-approved transdermal systems for delivering either hPTH(1-34) or tamsulosin.
The
following table identifies the products we have developed that are marketed by our partners, products in our advanced pipeline and products currently awaiting FDA approval.
Transdermal Drug Delivery Industry
Patients have benefited from the use of transdermal delivery systems since the first commercially approved transdermal product, ALZA Corporation's
Transderm Scop for the prevention of motion sickness was approved in 1979. To date, we are aware of approximately 20 drugs that have been successfully formulated and approved by the FDA for delivery
in transdermal patches, though the market is growing. According to Datamonitor, the global value of the market for systemic transdermal products, including patches, was approximately
$20 billion in 2010 and is expected to grow to approximately $30 billion by 2015. We believe this growth is driven by the increasing availability of transdermal systems for important
therapeutic applications and changing disease demographics.
Transdermal
delivery and transmucosal delivery, or delivery through mucous membranes, offer patients more convenient, non-invasive and comfortable methods of drug delivery. The benefits of transdermal
and transmucosal delivery systems over other dosage forms generally include enhancing the efficacy and reducing the side effects of a drug by controlling the rate of delivery and absorption, avoiding
the undesirable breakdown of drugs in the liver associated with gastrointestinal absorption, and improving the level of patient compliance and long-term adherence to therapy.
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Despite
the benefits of current transdermal delivery products, many key challenges prevent broader use and applicability:
•
Skin Irritation and Adhesion:
A
number of patches cause skin irritation and sensitization, often brought on by the inclusion of skin-permeating ingredients necessary to overcome the limitations of traditional patch technologies.
Some patches also experience adhesion failure resulting from excess moisture or heat while worn by the patient, for example when swimming, bathing or during other normal daily activities.
•
Safety and Drug Loading:
In order to
enable effective diffusion of sufficient amounts of drug through the skin, many transdermal delivery systems must incorporate large amounts of drug in the patch. After use, a large residual amount of
the drug remains and must be disposed of carefully, especially if the drug is potent or toxic. In some cases, only a small amount of the total drug loaded in a patch is actually delivered into the
bloodstream.
•
Delivery Limitation:
The
pharmaceutical industry has been unable to formulate certain drugs, especially biologics, for transdermal drug delivery, given the size and complexity of the molecules. These drugs generally are
delivered by injection, which causes pain and often requires administration by a medical professional. In addition, these drugs generally must be refrigerated, require biohazard disposal and present
the risk of accidental needle sticks. Many small molecules are also difficult to deliver transdermally, especially those that are not soluble in water or are unstable in the presence of air or water.
One
of the greatest opportunities in transdermal drug delivery is the ability to deliver biologics, including vaccines, peptides and proteins without the use of an injection. A number of companies
have attempted to develop technologies to address this challenge, but many have experienced commercial and development failures due to the formulation, scale-up and manufacturing complexities. Some of
these systems have relied upon large, complex and costly devices, usually with external power sources, which adversely impact their usability and reproducibility.
Our Solution
We are developing and commercializing advanced transdermal drug delivery products that are intended to expand the number and types of drugs that can
be delivered transdermally. We believe our technologies can be applied to improve the therapeutic value of many drugs by controlling the levels of drug delivered over a longer period of time. They are
also designed to eliminate the need for injections of certain drugs and to improve adhesion and skin irritation profiles. Our technologies also allow us to create cost-effective products, especially
by eliminating the need for complex devices and refrigeration throughout the supply chain. Our two proprietary platforms, Corplex and MicroCor, separately address some of the primary shortcomings of
traditional transdermal drug delivery. We believe our track record within the industry demonstrates our ability to develop commercially successful products.
Corplex Technology
Corplex is a novel technology incorporating combinations of materials that utilize the properties of both traditional pressure-sensitive adhesives, or
PSAs, as well as bioadhesives, to enable the transdermal delivery of small molecules. Corplex encompasses combinations and blends of polymers to provide a range of properties that improve adhesion and
delivery of active ingredients that may otherwise be difficult to formulate for transdermal delivery. We use our Corplex technology in the Crest Whitestrips line of products and in our clinical stage
Corplex Tamsulosin, as well as in other products in development. Additionally, we have one product utilizing Corplex technology for which an ANDA has been filed. Our Corplex transdermal delivery
systems
provide advanced custom solutions for small molecules and feature the following benefits:
•
Flexibility:
Corplex is adaptable
and provides the ability to formulate adhesives to complement a drug's unique properties, enabling new drug dosage forms and delivery options. As a result, Corplex systems can be formulated in several
dosage forms ranging from liquids (sprays, film-forming liquids), to semi-solids (gels, creams and ointments) to solids (powders, particles, dry and wet films, and patches).
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•
Ease-of-Use:
Our Corplex systems are
designed to improve patient compliance by being easy to use, self-administered and discreet. In addition, Corplex products are suitable for long-term skin contact and are designed to be easily removed
with minimal damage to skin and without leaving a residue. Corplex incorporates unique compositions and blends of polymers to provide a range of hydrophilic to hydrophobic properties, enabling
excellent adhesion to both dry and wet surfaces with a variety of wear times, ranging from seconds to up to seven days.
•
Compatibility:
Corplex can
incorporate liquid-based components that improve stability and diffusion of the drug without compromising adhesion. As a result, Corplex is compatible with many chemically diverse drugs, including
compounds that are highly soluble or highly insoluble in water, as well as a wide range of solubilizing agents and enhancers that enable the delivery of these molecules, thereby expanding the universe
of drugs that can be delivered transdermally.
•
Efficient and Controlled Drug
Delivery:
Because Corplex enables drugs to diffuse more easily through the skin, we can design Corplex products to require less drug to
achieve the desired therapeutic result. Patch sizes can also be smaller than conventional patches, reducing costs and improving the user experience. Additionally, Corplex allows for development of
products with drug delivery profiles ranging from immediate release to sustained release or a combination of fast-acting and long-lasting types of release.
•
Improved Therapeutic Profile:
By
achieving a steady dosage level, Corplex systems are designed to minimize side effects that otherwise result from peak concentrations of the drug when delivered with oral or other dosage forms.
Corplex allows us to minimize the use of ingredients that can cause skin irritation and sensitization, two of the most common side effects of transdermal drug delivery. In our Corplex systems, we use
materials that are well established for use in medical products by the FDA.
We
believe the combination of these benefits make Corplex well-suited for the development of a variety of healthcare products that require adhesive properties, including prescription transdermal drug
products, personal care, oral care, wound care, medical device and diagnostics products.
MicroCor Technology
MicroCor is a biodegradable microstructure patch technology that we are developing to enable transdermal delivery of biologics, in a disruptive
platform that reduces the need for needles and syringes and enables global distribution of biologics without requiring refrigeration. Because biologics cannot diffuse through the skin due to their
size, some mechanism is required to introduce these molecules beyond the outer layer of the skin, or stratum corneum, where they can be absorbed into the body. The further a delivery system penetrates
beyond the stratum corneum, the more likely it is to cause pain, bleeding and bruising. By integrating active ingredients directly into arrays of biodegradable microstructures, our MicroCor technology
is designed to penetrate only the stratum corneum to release the drug for local or systemic absorption, while eliminating the pain, bleeding and bruising that can be caused by needles and other active
delivery devices.
We
believe MicroCor will offer the following advantages over other delivery technologies in development for biologics:
•
Minimal Discomfort:
Our MicroCor
systems feature an array of microstructures that penetrate the stratum corneum to only a few hundred microns in depth, deep enough for effective delivery without causing pain, bruising or bleeding.
•
Dose Sparing:
MicroCor needles are
biodegradable and dissolve in the skin once the system is applied. In our clinical studies to date, we determined that over 90% of the drug contained in a single use of a MicroCor system was delivered
into the skin each time the system was administered. We expect our MicroCor systems to reduce drug waste and the costs associated with the excess drug that may be required in less efficient delivery
technologies.
•
Thermally Stable:
Our MicroCor
systems do not contain moisture, and therefore are designed to be room temperature stable, enabling both stockpiling and worldwide delivery without refrigeration, thereby minimizing drug or product
spoilage.
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•
No Biohazard Disposal:
Because
MicroCor needles completely dissolve in the skin, no sharps remain after use. We believe this feature will allow disposal of the system in a traditional trash receptacle without risk of accidental
needle sticks or abuse associated with residual drug left in the delivery system.
•
Ease-of-Use:
MicroCor products are
designed to be self-administered, fully-integrated, single-use systems that are worn for only a few minutes. Unlike other delivery systems, MicroCor requires no additional parts, electrical power or
complex external enabling devices to effectively deliver the drug or product.
•
Cost-Effective:
In addition to the
cost savings associated with dose sparing and thermal stability, MicroCor's fundamental design and our proprietary molding process also minimize costs associated with manufacturing MicroCor systems.
Our process allows us to reduce waste of active ingredients used in manufacturing, as compared to needle coating processes used by other delivery technologies for large molecules.
The
figure below depicts the MicroCor technology:
Our Strategy
We believe our balanced portfolio strategy enables us to capitalize on our proven strengths and technological advantages while diversifying risk and
limiting our financial exposure. The key components of our strategy are to:
•
Expand our existing revenue base by
commercializing our advanced pipeline.
We intend to work with our existing partners to gain regulatory approval and commercially launch
the AG200-15 contraceptive patch with Agile and a motion sickness patch and an urology patch with Teva. We also plan to develop, launch and manufacture new oral care products and certain other new
products outside of oral care through our partnership with P&G.
•
Advance the development of proprietary products
already in development.
We plan to advance the development of MicroCor hPTH(1-34) and Corplex Tamsulosin, and selectively work with new
partners to advance certain products in our earlier stage pipeline. We intend to focus primarily on products that incorporate FDA-approved drugs, thereby allowing us to take advantage of the 505(b)(2)
regulatory pathway.
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•
Enter into co-development and commercialization
agreements with new and existing partners for new products.
We are actively evaluating potential new product candidates that leverage our proprietary technologies. Additionally,
we plan to transition our MicroCor technology feasibility programs with leading pharmaceutical partners into co-development partnerships to develop and commercialize transdermal system-based vaccines
and proprietary biologic products.
•
Expand our MicroCor manufacturing
capabilities.
We intend to further develop MicroCor manufacturing capabilities to commercial scale, enabling late-stage development,
launch and commercial production of multiple new high-margin biologic products.
•
Further leverage our core competencies and
proprietary technologies.
We intend to apply our technologies to create and develop a portfolio of new transdermal products in areas of
significant unmet need — in particular, chronic, degenerative and progressive conditions affecting the brain and central nervous system, such as Alzheimer's and Parkinson's
diseases. We are focusing our self-funded new product efforts on products that we could commercialize with a relatively small specialty sales force.
Strategic Relationships
Our partners are critical to our success. We currently have strategic relationships with the following companies, as well as earlier-stage
relationships with a number of other companies. This diversified mix of partnerships provides multiple potential sources of revenue growth in the future. In each of fiscal 2012 and 2013, we derived
nearly all of our revenues from our partners P&G, Teva, Actavis and Par. In fiscal 2012, we received $7.9 million of our revenues from P&G, $11.4 million from Teva, and
$18.1 million from Actavis, or 18%, 26%, and 42%, respectively. In fiscal 2013, we received $11.8 million of our revenues from P&G, $16.7 million from Teva, and
$16.6 million from Par, or 23%, 33%, and 33%, respectively. In the three months ended December 31, 2013, we received $3.0 million of our revenues from P&G, $3.7 million
from Teva, and $3.2 million from Par, or 28%, 35%, and 31%, respectively.
The Procter & Gamble Company
In June 2005, we entered into a multi-faceted strategic arrangement with P&G, one of the largest consumer products companies in the world. Our
relationship includes a worldwide license to P&G for the use of our Corplex technology in products in the general field of consumer products. This field does not include rights in the prescription
drug, foot care and wound care fields. P&G paid us fees for the license, plus additional future milestone payments for products that we develop for P&G. In addition, we entered into a long term joint
development agreement under which we perform numerous research and development activities for P&G based upon agreed-upon statements of work and budgets. We also have a commercial supply agreement in
place, under which we are responsible for the production and supply to P&G of four oral care products. Our supply agreement with P&G was previously extended for a three-year term to the end of 2013
and was amended recently to extend through July 2014. We are in the process of negotiating an additional extension, which we expect to have completed by July 2014. The supply agreement can be
expanded to include any additional
products that move into commercial supply. We believe that we have unique capabilities and know-how related to the manufacture of Corplex-based Crest Whitestrips, which would be difficult for another
party to duplicate.
We
have developed and commercialized four oral care products for P&G sold under the brand name Crest Whitestrips. The four products are Advanced Vivid, Professional Effects, One Hour Express and
Flex-Fit. We have developed all of these products under the joint development agreement and are currently supplying the product in an intermediate, not final packaging, stage to P&G. In addition, we
have other products in development for the oral care business at P&G as well as certain products in development for other businesses at P&G.
In
addition to the license and joint development transactions, in 2005 we also acquired P&G's microneedles patent portfolio and know-how. In exchange for the assignment of the patent portfolio of 51
patents and
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patent
applications, we issued to P&G 1,266,830 shares of our common stock and granted P&G certain co-sale and board observer rights.
In
addition to contract research and development and product revenues, from the inception of our collaborations with P&G, we have received a total of $3.2 million in license fees and
$2.0 million in milestone payments from P&G. Pursuant to programs currently underway, we may be eligible for up to $5.0 million in future milestone payments. None of our arrangements
with P&G require a royalty to be paid to us.
Teva Pharmaceuticals, USA Inc.
In 2004, we entered into a development, manufacturing and commercialization agreement with Barr Laboratories, Inc. for four generic transdermal
drug products. We entered into three separate agreements with Barr, one in 2006 and two in 2007, to develop and commercialize additional ANDA transdermal patch products. In 2008, Teva
Pharmaceuticals, Inc. acquired Barr. Following this acquisition and its review of resource allocations and potential conflicts, Teva continued three of these development programs. One of these
programs has resulted in an approved product marketed as Clonidine TDS, and the other two, a motion sickness patch and a urology patch, are the subject of pending ANDAs.
Under
our agreements with Teva, we are the exclusive suppliers of the products that are the subject of each development program. We receive compensation for developing the product, plus a
manufacturing margin,
expressed as a margin above costs, and a profit share based on Teva's net profits on the products. Teva has an exclusive license to use certain of our intellectual property to the extent necessary to
commercialize, make, use or sell the ANDA product.
The
Teva product contracts extend for ten years beyond the respective product launch dates, with provisions for automatic annual renewal thereafter. The contracts may be terminated, with three months
notice before the end of a renewal period, or for uncured material breach, bankruptcy, or certain conditions preceding ANDA filing. If Teva were to terminate the agreement, it would be required to
obtain FDA approval for an alternate manufacturing site before it could obtain additional supply of the product, a process that generally takes two years or more.
Clonidine
TDS was the first product under our partnership with Teva to be approved by the FDA. Teva launched the product in 2010, and currently has the largest share of the clonidine patch market. We
also have two additional products partnered with Teva awaiting FDA approval, a motion sickness patch and a urology patch, and are in negotiations to add three additional ANDA products to our portfolio
of Teva-partnered products.
In
addition to contract research and development revenues and product revenues, from the inception of our collaborations with Teva and its predecessor, we have received no license fees and
$0.2 million in milestone payments. Under our current agreements, we are not eligible for additional milestone payments. We receive a profit share equal to a low tens percentage of Teva's net
sales of Clonidine TDS, after deducting certain selling-related expenses.
Par Pharmaceutical, Inc.
In 2002, we entered into a product development, collaboration and license agreement and in 2003 we entered into a manufacturing and supply agreement
with Abrika LLLP for a generic equivalent of Duragesic, a fentanyl transdermal product marketed by Johnson & Johnson. In 2007, Abrika was acquired by Actavis, Inc. In 2007, the FDA
approved and Actavis launched our Fentanyl TDS product. In 2012, Par Pharmaceuticals, or Par, acquired the fentanyl business from Actavis, and Par currently markets Fentanyl TDS as our partner. Under
the manufacturing and supply agreement, we are the exclusive supplier of Fentanyl TDS to Par.
Abrika
and Actavis paid us for the development of Fentanyl TDS and we also receive a manufacturing margin and a royalty on net sales of the products by Par. The 2002 agreement may be terminated for
uncured material breach, bankruptcy, or certain conditions preceding ANDA filing. If Par were to terminate
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the
agreement, it would be required to obtain FDA approval for an alternate manufacturing site before it could obtain additional supply of the product, a process that generally takes two years or
more.
In
addition to contract research and development revenues and product revenues, from the inception of our collaborations with Par and its predecessors, we have received no license fees and
$0.5 million in milestone payments from Par. Under our current agreements, we are not eligible for additional milestone payments. We receive a royalty equal to a mid-single digit percentage of
Par's net sales of Fentanyl TDS.
Agile Therapeutics, Inc.
In 2006, we entered into a development, license and commercialization agreement with Agile Therapeutics, Inc., a privately-owned company that
focuses on development of women's healthcare products. As part of our relationship, we are the exclusive supplier of the AG200-15 combined hormonal contraceptive patch, which was designed by Agile
using its formulation technology and is proprietary to Agile. Under our agreement with Agile, we have performed substantial work, funded by Agile, on the process development and scale-up of the
manufacturing process for AG200-15, and we have manufactured the product for each of Agile's clinical trials. Our agreement also includes an additional Agile product, AG890, which is a progestin-only
contraceptive patch in Phase 2 of clinical development.
In
anticipation of the approval and commercial launch of the AG200-15 product, we have worked in partnership with Agile to prepare facilities and equipment at our Grand Rapids manufacturing site for
commercial production of the product. The primary production equipment specifically designed for manufacture of this product has been purchased and is owned by Agile and we are responsible for
operating and maintaining that equipment.
Our
exclusive right to manufacture AG200-15 and AG890 extends until we have commercially produced an agreed-upon quantity of patches, currently projected to occur no earlier than five years following
commercial launch of AG200-15. The contract may be terminated for uncured material breach. Following the end of the exclusivity period, if Agile were to seek a second source of supply, Agile would be
required to obtain FDA approval for an additional manufacturing site, a process that generally takes two years or more, and make substantial investments in new facilities and equipment.
In
addition to contract research and development revenues, from the inception of our collaborations with Agile, we have received no license fees and $3.5 million in milestone payments from
Agile. We are not currently eligible for any future milestone payments, and the terms of our supply agreement do not entitle us to receive a royalty.
Products and Pipeline
We have six commercial products and three products awaiting FDA approval, and we are developing three additional undisclosed prescription drug
products with partners. We have seven ongoing feasibility agreements with four major pharmaceutical companies involving our MicroCor technology, and are currently in active discussions with four other
companies for additional feasibility projects.
Marketed Products:
In fiscal 2013, we received a total of $38.6 million in product revenues from our three marketed products: $13.2 million from Clonidine
TDS, $15.6 million from Fentanyl TDS, and $9.8 million from Crest Whitestrips, representing 34%, 40% and 25% of total product revenues, respectively.
Clonidine TDS
is a treatment for hypertension that we developed under an ANDA as a generic version of the branded drug known as Catapres TTS. Clonidine
TDS was launched in 2010 and is marketed by Teva and manufactured by us exclusively for Teva. According to Symphony Health Solutions, an independent market research firm, the U.S. generic clonidine
patch market was approximately $230 million in 2012, supplied primarily by two companies.
Fentanyl TDS,
is a treatment for management of chronic pain, including cancer-related pain, under specified conditions. We developed this product for
approval under an ANDA as a generic version of the
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branded
product known as Duragesic. Our Fentanyl TDS was approved in 2007 and is currently marketed by Par and manufactured by us exclusively for Par. According to Symphony Health Solutions, the U.S.
generic fentanyl patch market was greater than $1 billion in 2012 supplied by seven companies.
Crest Whitestrips
are a series of four products for oral care that we co-developed with P&G as part of a broad relationship relating to consumer products.
These products utilize our Corplex polymer technology and are sold under the brands Advanced Vivid, Professional Effects, One Hour Express and Flex-Fit. We are the sole supplier of
the oral care system marketed as Crest Whitestrips for P&G. The market for teeth whitening products was approximately $580 million in 2012, of which P&G has the majority market share.
Advanced Pipeline Products:
AG200-15
is a combination hormonal contraceptive patch that contains the active ingredients ethinyl
estradiol (an estrogen) and levonorgestrel (a progestin), both of which have an established history of efficacy and safety in currently marketed combination contraceptives. AG200-15 is designed to
deliver both hormones at levels comparable to low-dose oral contraceptives. By delivering these active ingredients over seven days, this product is designed to promote enhanced compliance by patients
with a convenient, easy-to-use format. The patch is applied once weekly for three weeks, followed by a week without a patch. The product, which was designed by Agile and for which we have done process
development and manufacturing, will, if approved, be packaged with three patches per carton to provide a cycle (month) of therapy.
The
current U.S. market for combination hormonal contraceptive products is approximately $4.2 billion. Historically, the growth of prescriptions in this market has been driven by the
introduction of new branded products, and approximately half of the total market sales are represented by only eight branded products. This market includes oral dosage forms as well as other non-oral
products, such as a vaginal ring and a transdermal system. An earlier-generation transdermal contraceptive product known as Ortho Evra, launched in 2002 by Johnson & Johnson, was the most
successful product launch in the history of the U.S. contraceptive market, and rapidly gained annual sales levels of nearly $400 million by 2004. However, sales of that product declined rapidly
following the emergence of safety concerns that were associated with the relatively high levels of estrogen delivered by Ortho Evra. Based on the market experience of other non-oral dosage forms,
including the Ortho Evra product, we believe there is a continuing demand for an innovative transdermal contraceptive patch that can provide convenience in a low-dose transdermal format.
Agile
has conducted multiple clinical studies of AG200-15, including pharmacokinetic studies and Phase 3 efficacy and safety studies. In a pharmacokinetic study comparing AG200-15 to an oral
contraceptive, Agile demonstrated that AG200-15 delivers a dose that results in estrogen exposure similar to low-dose oral contraceptives. Although Agile did not conduct a head-to-head study with
Ortho Evra, this level of estrogen exposure is about one-half the estimated daily dose described in pharmacokinetic studies of Ortho Evra, the first FDA-approved transdermal contraceptive.
Agile
also conducted two Phase 3 studies, involving approximately 1,900 patients, to evaluate the safety and efficacy of AG200-15. Each of these studies included an active comparator arm with
an oral contraceptive. The results of these studies demonstrated that the AG200-15 product was well-tolerated, with levels of adverse events comparable to those of oral contraceptives. In these
studies, the product had a favorable adhesion profile, and subjects had a higher rate of compliance when using the patch compared with the group using oral contraceptives.
In
the Phase 3 trials the primary measure of efficacy was the Pearl Index, a measure of the rate of unintended pregnancies experienced by women in the study. The Pearl Index levels for both the
AG200-15 patch and oral contraceptive control arms in the Agile Phase 3 studies were higher than those in studies conducted on products previously approved by the FDA. The results for both the
patch and oral contraceptive control arms in the Agile Phase 3 studies may have been affected by the inclusion of relatively high proportions of first-time contraceptive users and other
population groups that have, in historical clinical studies, tended to have higher rates of pregnancies than the general population.
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In
February 2013, Agile received a Complete Response Letter from the FDA, indicating that the results from the completed Phase 3 studies would not be sufficient for approval, and proposing that
Agile conduct an additional Phase 3 study. Among the concerns expressed in the letter were the Pearl Index values seen in the studies. Specifically, the FDA indicated the Pearl Index values in
the studies (in both the subjects using the AG200-15 patch and the control arm using oral contraceptives) were higher than seen in clinical trials used for registration of other approved hormonal
contraceptives. Agile believes that the results for both the patch and oral contraceptive control arms in the Phase 3 trials were affected, in part, by the study population, which differed in
composition from the population enrolled in trials of previously approved combination hormonal contraceptive, or CHC. Agile believes it enrolled a disproportionately high number of new users and
minorities in both arms of its study, as compared to other CHC clinical trials. Notably, there were higher incidences of non-compliance and loss to follow-up in new users compared with experienced
users in the Agile study. These factors may have contributed to the high rates of noncompliance in Agile's trials, which often correlates with a higher contraceptive failure rate. The FDA recommended
that Agile conduct an additional Phase 3 trial with a simplified clinical trial design. The Complete Response Letter also requested improvements in the study conduct, including site monitoring
and data collection procedures, and additional information on inprocess controls relating to the patch, a drug master file that was referenced in the NDA, and product release specifications.
Agile
has met with the FDA and received further guidance on requirements for its application. Based on these discussions, Agile plans to initiate an additional study in the first half of 2014, which
it anticipates completing by the end of 2015. This study will be designed to address key issues that arose in the previous studies, including enhanced patient enrollment criteria and processes, and
close monitoring of compliance with the study protocol. Based on FDA guidance toward a simplified study design, Agile plans to design and conduct the new clinical study to be a single-arm,
non-comparative trial, without an oral contraceptive comparator, expected to cover up to 13 ovulation cycles per subject. The time for selection and training of study sites, and for selection,
enrollment and training of subjects will be extended and monitored by study coordinators, and various technologies will be employed to provide reminders and collect information on a real-time basis.
To manage the study, Agile recently hired a new chief medical officer, and it plans to retain a new clinical research organization that is experienced in contraceptive clinical studies. There can be
no assurance that this additional study will be successful in demonstrating efficacy and safety of the product. However, assuming successful completion of this additional study, Agile would plan to
submit a supplement to its NDA in early 2016. Assuming a six-month review by the FDA, approval would occur late in 2016. Our marketing partner intends to launch the product as soon as possible
following FDA approval.
We
are working with Agile to prepare for the additional Phase 3 study, including the manufacture of product for use in the study. We have also completed a substantial build-out of our
facilities in Grand Rapids, Michigan, and have installed over $10.0 million of equipment purchased by Agile to accommodate the commercial production of AG200-15 if it is approved and launched.
In
fiscal 2013, we received a total of $4.3 million in contract research and development revenues from Agile, representing 40% of our total contract research and development revenues.
MicroCor hPTH(1-34)
is a transdermal system designed to use our MicroCor technology to provide simplified delivery of parathyroid hormone, the active
ingredient of Forteo, an injectable product marketed by Eli Lilly and Company for the treatment of severe osteoporosis. hPTH(1-34) is a shortened version of the naturally occurring parathyroid hormone
that promotes bone growth. Forteo achieves annual worldwide sales of greater than $1 billion despite significant patient compliance and convenience challenges, including daily subcutaneous
injection and refrigerated storage. According to Datamonitor, the compliance rate of patients being treated with injectable osteoporosis treatment is approximately 50%. With a simple one-step
application process, short wear time and a favorable pharmacokinetic profile, MicroCor hPTH(1-34) represents, if approved, an opportunity to effectively deliver an improved anabolic therapy and
increase patient compliance in the osteoporosis market.
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The
global osteoporosis market represents a significant opportunity, with growing revenues that are estimated to reach greater than $5.2 billion in the seven major market countries by 2021
according to Datamonitor. This growth is driven by both general population aging and the anticipated launches of several premium priced market entrants in the coming years. Current treatment is
focused on the use of bisphosphonates as the first-line approach. However, these agents provide only anti-resorptive activity and are associated with significant gastrointestinal side effects and
other adverse outcomes. Treatment with PTH is the only treatment approach that promotes bone growth currently available for the treatment of osteoporosis.
We
have completed a Phase 1 safety and pharmacokinetic study of MicroCor hPTH(1-34) in healthy women. In this study, MicroCor hPTH(1-34) was shown to be safe and well tolerated with comparable
drug exposure to that achieved with the commercially available subcutaneous injections. The product achieved rapid systemic delivery of hPTH with a short wear time of five minutes. On the basis of
these results, we are planning further clinical development of MicroCor hPTH(1-34) under a 505(b)(2) regulatory pathway that leverages existing hPTH safety and efficacy data from the approved dosage
form of parathyroid hormone. We anticipate that the clinical plan will consist of a Phase 2a pharmacokinetic study, which we plan to commence in the second half of 2014. This will be followed
by a six-month Phase 2b efficacy/safety and dose finding study in osteoporosis patients and a one-year Phase 3 trial, each measuring change in bone mineral density as a primary endpoint.
MicroCor
hPTH(1-34) has demonstrated a favorable safety profile in multiple nonclinical biocompatibility and microbial studies. The product has also demonstrated favorable room temperature stability.
We believe MicroCor hPTH(1-34) is the only integrated, single step application PTH transdermal product currently in clinical development, and is well-positioned for this growing market. We have
self-funded this program since inception, and are planning to advance it into Phase 2 clinical trials with proceeds from this offering. We expect to partner with a company active in bone
health, women's health or endocrinology to distribute and sell the product, if approved.
We
have in place pilot facilities for manufacture of MicroCor products for early clinical testing. We also have extensive experience with process development and commercial scale-up for transdermal
products. In preparation for Phase 3 clinical trials of MicroCor hPTH(1-34), we have developed an aseptic manufacturing plan for large scale manufacturing and we have designed the manufacturing
process for MicroCor systems to be streamlined, robust and cost effective.
Corplex Tamsulosin
is a transdermal patch designed to use our Corplex technology to provide controlled delivery of tamsulosin, the active ingredient in
the leading once-daily capsule product for treatment of benign prostatic hyperplasia, or BPH, marketed under the brand name Flomax. Tamsulosin is a drug that relaxes smooth muscle cells in the
prostate and bladder neck, thereby decreasing the blockage of urine flow that occurs with an enlarged prostate. The oral dosage form of tamsulosin was first launched in 1993 and, according to
Datamonitor, worldwide sales in 2012 neared $550 million. By providing a controlled and relatively steady level of drug over an extended time, Corplex Tamsulosin is intended to alleviate the
side effects associated with peak blood concentrations of the drug in its current oral formulation and to provide a consistent level of efficacy. Several companies have attempted to formulate
tamsulosin into a patch, but have not succeeded due to the low solubility properties of this drug. Our completed Phase 1 pharmacokinetic study in healthy subjects demonstrated that Corplex
Tamsulosin enabled delivery of the drug at blood concentration levels equivalent to the effective levels provided with the oral dosage form, but with an extended and controlled release profile. If
successfully commercialized, Corplex Tamsulosin could be the only patch available for tamsulosin.
We
expect Corplex Tamsulosin to offer the following potential advantages over the oral tamsulosin product:
•
Enhanced safety and efficacy:
Corplex Tamsulosin is designed to provide a relatively steady dosage over multiple days. Studies have shown that a steady 24-hour pharmacokinetic profile for tamsulosin is associated
with better control of nocturia, or frequent night time urination, and reduced cardiovascular side effects.
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•
Enhanced convenience and
compliance:
Patients may apply Corplex Tamsulosin once or twice weekly instead of a once daily oral dose. In addition, oral dosage forms
must be taken approximately 30 minutes following the same meal every day because of the effects of food on tamsulosin's pharmacokinetics.
•
Ease of use:
We believe the
predominantly elderly and growing BPH population would benefit from a transdermal system because many older patients have difficulty swallowing oral dosage forms.
We
have completed a Phase 1 safety and pharmacokinetic study of Corplex Tamsulosin in healthy men. In this study, Corplex Tamsulosin demonstrated a favorable safety profile, was well-tolerated
and the drug exposure of the once-weekly patch was comparable to daily oral Flomax capsules. Planning is underway for further clinical development under a 505(b)(2) regulatory pathway that leverages
existing tamsulosin safety and efficacy data of the marketed product. We anticipate that the clinical plan will consist of a one month Phase 2 efficacy/safety and dose finding study in patients
and a three month (with open label extension of six to nine months) Phase 3 trial in
patients, using an American Urology Association symptom score or International Prostrate Symptom Score as the primary end point.
We
have self-funded this program since inception, and are planning to advance it into Phase 2 with proceeds from this offering in the first half of 2015. We expect to partner this product with
a company with marketing experience and capability in the urology field.
Products Awaiting Approval:
Motion Sickness Patch.
We have developed a generic transdermal product for the prevention of nausea and vomiting associated with motion sickness. We developed a
three-day patch for Teva under an ANDA, and Teva is currently awaiting FDA approval. We have completed all of the development, scale-up and clinical activities and expect this product to launch in
2014, if approved.
In
fiscal 2013, we received a total of $2.9 million in contract research and development revenues from Teva for this product, representing 27% of our total contract research and development
revenues.
Urology Patch.
We have developed a generic transdermal product for treatment of a urologic condition. We developed a three-to-four-day patch for Teva under an ANDA,
and Teva is currently awaiting FDA approval. We have completed all of the required development, scale-up and clinical activities and expect this product, if approved, to launch in 2015, pursuant to
the terms of a patent settlement agreement between Teva and Actavis.
In
fiscal 2013, we received a total of $0.7 million in contract research and development revenues from Teva for this product, representing 6% of our total contract research and development
revenues.
Development Pipeline Products:
Alzheimer's Disease (Donepezil and Memantine)
Alzheimer's disease, the leading cause of dementia, is characterized by the progressive loss of memory, thinking and ability to perform activities of
daily living, such as bathing, feeding and self-care, as well as significant behavioral disturbances such as agitation, aggression, delusions and hallucinations. According to industry sources,
Alzheimer's disease currently affects approximately 5.3 million people in the United States, including as many as 13% of people aged 65 and older and approximately 50% of those 85 and older.
Total annual expenditures on caring for patients with Alzheimer's disease in the United States alone exceeds $200 billion.
According
to Datamonitor, the worldwide market for Alzheimer's disease therapies currently exceeds $3.9 billion, with the largest selling products being the cholinesterase inhibitor, Aricept,
and the NMDA-receptor antagonist, Namenda. By 2015, both of these branded Alzheimer's drugs will lose patent protection in the United States and Europe.
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We
have initiated development work on advanced transdermal patches for the treatment of Alzheimer's disease incorporating proven and approved molecules, one of which is the active ingredient in
Aricept, under a 505(b)(2) regulatory pathway, which we believe will allow for reduced nonclinical and clinical study cost and time. The products are designed to decrease the side effects of the
current therapies, such as nausea, which may improve patient adherence and compliance.
Parkinson's Disease (Ropinerole and Pramipexole)
Parkinson's disease is the second most common neurodegenerative disorder after Alzheimer's disease. Approximately one million people in the United
States and from four to six million people worldwide suffer from this disease, which is commonly treated with dopamine replacement therapies such as levodopa and dopamine agonists, which are molecules
that mimic the action of dopamine. According to PharmaCircle, an industry database, the current Parkinson's disease market is approximately $3.0 billion globally.
We
are developing advanced therapies incorporating proven and approved molecules under a 505(b)(2) regulatory pathway, which we believe will allow for reduced nonclinical and clinical study cost and
time. Because Parkinson's patients have trouble swallowing pills, we believe a transdermal or film product would address an unmet need recognized by patients and physicians alike.
MicroCor Feasibility Programs
include seven partner-funded feasibility programs that we have completed or are currently in progress. Additional programs
are in the planning process. In the programs performed to date, we have collaborated with leading biopharmaceutical companies to formulate their proprietary active molecules in our MicroCor technology
and demonstrate delivery of the drug in animal models. The active molecules in these studies have been primarily large biologic molecules, including vaccines, peptides, proteins and monoclonal
antibodies. After completing a number of these programs successfully, we are now advancing certain programs into later stages of development, including new vaccine and therapeutic applications.
Future Pipeline Programs
include three additional undisclosed ANDAs that have been partnered with two pharmaceutical companies. Two of the products are in
development and we expect the ANDAs to be filed in 2015, while the third product is entering clinical trials in the first quarter of 2014. We also are developing skin care and cosmetics products
utilizing our Corplex and MicroCor technologies for our partners.
In
fiscal 2013, we received an aggregate total of $2.8 million in contract research and development revenues from our collaboration partners for these programs, representing 26% of our total
contract research and development revenues.
Research and Development
Our research and development operations are located in a 25,000 square foot laboratory and office facility in Menlo Park, California that is
configured for transdermal and transmucosal systems development. We conduct proprietary drug delivery research utilizing our extensive experience in polymer blending, formulations and system
engineering to produce innovative products with high drug delivery efficiency. Our research and development team has full early product development capabilities, including:
•
Formulation, system design and engineering;
•
Analytical method development and validations;
•
Prototyping and pilot manufacturing;
•
Early stage quality assurance and quality control;
•
Nonclinical and early stage clinical development; and
•
Regulatory affairs.
In
addition, our Menlo Park site operates a pilot facility capable of making products in accordance with cGMP requirements for anticipated Phase 1 and Phase 2 clinical studies.
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Our
Menlo Park research and development team includes 37 scientists and engineers, some of whom were original inventors of transdermal patches. We perform the formulation system design, analytical
method development and prototyping for all of our transdermal products. Our research and development team works in collaboration with the process scale-up team in our manufacturing operations early in
the product development cycle. This early coordination helps assure streamlined technology transfer success in the final scale-up and commercial manufacture of each product, leading to more robust
development programs and greater manufacturing efficiencies.
Manufacturing
Our commercial manufacturing facilities are located in Grand Rapids, Michigan in three buildings comprising approximately 200,000 square feet. We have
a full range of development and manufacturing capabilities, from complete process development and scale-up services to commercial manufacture. We have made significant investments in our manufacturing
technology that allow us to automate many of our processes and maximize the productivity of our labor force. We employ multiple manufacturing techniques, including solvent cast and extrusion
manufacturing processes that minimize the thickness of our patches and reduce the costs of our products. Solvent-casting is well-suited for manufacturing films containing heat-sensitive molecules
because the temperatures required to remove the solvents are relatively low compared to those needed for a hot-melt extrusion process. Hot-melt extrusion is not suitable for ingredients that could be
thermally degraded in the process, but is environmentally friendly, cost effective and more flexible than solvent cast-only processes.
Our
manufacturing platform includes:
•
Process development through commercial product manufacture, including final
finishing and cartoning;
•
Multiple-use equipment providing flexibility for small volume jobs to
dedicated equipment for large volume production;
•
High accuracy coating for pressure sensitive adhesives, acrylics and
polyisobutylene, or PIB;
•
Automated solvent casting and extrusion capabilities, including both twin
screw and mixer extrusion;
•
Automated high-speed, high-accuracy die cutting, and integrated die cutting
and pouching;
•
Physical testing and analytical method capabilities;
•
The licensing required to handle scheduled drugs and compounds requiring
special handling;
•
The ability to manufacture drug and device combination products with high
accuracy assembly for multiple and complex components; and
•
Manufacturing capabilities for proprietary MicroCor biodegradable
microstructures, including specialty coating, curing, drying and assembly processes.
Our
facilities are FDA and DEA registered, and ISO9001 and ISO13485 certified. Our manufacturing facilities in Grand Rapids are licensed to manufacture OTC products, consumer products, prescription
transdermal, dermal and mucosal products, as well as wound care products. Our Grand Rapids facilities also have the capacity to produce well over 100 million patches annually and can be
expanded as our needs grow. A number of our equipment lines have been fully funded by our partners to support the development of partnered products. In these cases, the partners retain title to those
equipment lines, while we retain responsibility to maintain and operate them. Our operations include on-site quality control laboratories and testing procedures, quality assurance systems, and
internal audit procedures for our processes and equipment.
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Intellectual Property
Our success depends on our ability to obtain patents and protect our trade secrets and know-how. We must be able to operate without infringing on any
other company's intellectual property and we must prevent others from infringing our intellectual property. Our strategy is to protect our intellectual property by filing both U.S. and international
patents related to our proprietary technologies, products, inventions and improvements that are important to our business. As of January 31, 2014, we held 38 U.S. issued patents and 147 foreign
issued patents (which include granted European patents rights that have been validated in various EU member states) and 28 U.S. pending patents and 60 foreign pending patents relating to our Corplex
and MicroCor technologies and products. Of the issued U.S. patents, 21 relate to composition of matter and 17 relate to use or process. Of the pending U.S. patents, 25 relate to composition of matter
and 3 relate to use or process. Our foreign patents generally include both composition of matter and use or process claims. Our issued U.S. patents and patent applications will expire between 2019 and
2034. Some of the issued patents and pending patent applications, if issued may also be eligible for patent term adjustment and patent term restoration, thereby extending their patent terms.
Proprietary
rights for our products in development and our potential products will be protected from use by third parties only to the extent that they are covered by valid and enforceable patents or
are effectively maintained as trade secrets. Patents owned by us (or licensed by us) may not protect us from competition in the future and our pending patent applications may not result in patent
rights being issued. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as they do under U.S. law.
The
patent positions of pharmaceutical, drug delivery and biotechnology companies are complex and enforcement cannot be predicted with certainty. Our patents or patent applications, if issued, may be
challenged or invalidated and the rights granted may not provide proprietary protection or competitive advantages over our competitors with similar technologies. Our competitors may also develop
similar technologies to ours, or in fact duplicate our technologies. Because the regulatory timeline is quite long and expensive to develop the types of products that we develop, it is possible that
before any of our products are commercialized, any related patent may expire or exist for only a short period of time following commercialization. This could negatively impact our ability to protect
our future products and consequently our operating results and financial position.
Our
products in developments may be covered by third party patents or other intellectual property rights, in which case we would need to obtain a license to continue to develop and/or market these
products. Such licenses may not be available on acceptable terms and such licenses may not be attainable, which could delay product launches if we are required to design around a patent. Litigation
may be necessary to defend against or assert claims of infringement enforce patents, protect trade secrets or know-how or to determine validity in order to
freely sell a product in the marketplace. In addition, interference, derivation, post-grant oppositions or other proceedings may be necessary to determine rights to inventions in our patents.
Litigation could incur substantial financial costs and may have a material adverse effect on our business, financial condition or results of operations.
In
certain circumstances, we rely on trade secrets to protect our technology. Trade secrets are difficult to protect. Generally we protect our proprietary processes and manufacturing this way and we
secure confidentiality agreements from all of our employees, contractors, consultants and advisors. We cannot assure that the agreements will not be breached or that we will be able to remedy such a
breach or that our trade secrets will not become known in the public domain and be discovered by our competitors. Disputes may also arise with respect to know-how and inventions created by our
employees, contractors and consultants. See the section entitled "Risk Factors—Risks Related to Our Intellectual Property."
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Regulatory
Food and Drug Administration.
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements
upon the clinical development, manufacture and marketing of pharmaceutical, and consumer cosmetic products. These agencies and other federal, state and local entities regulate research and development
activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, distribution, record keeping, approval, advertising and promotion of our products. Many of our
products are combination drug-device products that are regulated as drugs by the FDA, with consultations from the device center in the FDA. Others, such as consumer teeth whitening products, are
regulated by the FDA as cosmetics. Failure to comply with applicable FDA or other requirements may subject a company to a variety of administrative or judicial sanctions, such as the FDA's refusal to
approve pending applications, a clinical hold, warning letters, recall or seizure of products, partial or total suspension of production, withdrawal of the product from the market, injunctions, fines,
civil penalties or criminal prosecution.
FDA Regulation of Drugs.
The process required by the FDA under the new drug provisions of the Federal Food,
Drug, and Cosmetic Act, or the FFDC Act, before our investigational drugs may be marketed in the U.S. generally involves the following:
•
Completion of extensive preclinical laboratory tests and preclinical animal
studies, all performed in accordance with the FDA's Good Laboratory Practice, or GLP, regulations;
•
Submission of an Investigational New Drug application, or IND, which must
become effective before clinical trials may begin;
•
Performance of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the investigational drug for each proposed indication in accordance with the FDA's current good clinical practice, or GCP, requirements;
•
Submission to the FDA of a New Drug Application, or NDA, after completion of
all pivotal clinical trials;
•
Satisfactory completion of an FDA pre-approval inspection of the
manufacturing facilities at which the drug will be produced to assess compliance with current good manufacturing practice, or cGMP, regulations, or, for our medical device components, the Quality
System Regulation, or QSR; and
•
FDA review and approval of an NDA prior to any commercial marketing or sale
of the drug in the United States.
Preclinical
tests include laboratory evaluation of the investigational drug, its chemistry, formulation and stability, as well as animal studies to assess its potential safety and efficacy. For human
clinical trials to be conducted in the United States, we must generally submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of
an IND, which must become effective before we may begin human clinical trials. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, raises concerns or questions about the conduct of the trials as outlined in the IND and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before clinical trials can begin. Our submission of an IND may not result in FDA authorization to commence
clinical trials. Further, an independent Institutional Review Board, or IRB, at each medical center proposing to conduct the clinical trials must review and approve any clinical study as well as the
related informed consent forms and authorization forms that permit us to use individually identifiable health information of study participants.
Clinical
trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the
requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the
objective of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be
submitted to the FDA as part of the IND. The IRB must monitor the study until completed. There are also requirements governing the reporting of ongoing clinical trial results to public registries.
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The
foregoing discussion of clinical trials applies to clinical trials conducted under an IND. In some instances, we may conduct clinical trials outside of the United States, which may require
different or additional regulatory submissions depending on the country in which the trial is conducted.
Human
clinical trials are typically conducted in three sequential phases which may overlap or be combined:
•
Phase 1: Includes the initial introduction of an investigational drug
into humans. Phase 1 studies are typically closely monitored and may be conducted in patients or normal volunteer subjects. Phase 1 studies are designed to determine the metabolism and
pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During these studies, sufficient information
about the drug's pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase 2 studies. These studies include studies of
drug metabolism, structure-activity relationships, and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or
disease processes.
•
Phase 2: Includes controlled clinical studies conducted to evaluate
the effectiveness of the drug for a particular indication or indications in patients with the disease or condition under study and to determine the common short-term side effects and risks associated
with the drug.
•
Phase 3: When Phase 2 clinical trials suggest effectiveness of
a drug, Phase 3 clinical trials are undertaken to gather the additional information about effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug
and to provide an adequate basis for physician labeling.
We
cannot be certain that we will successfully complete Phase 1, Phase 2 or Phase 3 clinical trials of our investigational drugs within any specific time period, if at all.
Furthermore, the FDA or the IRB or the sponsor may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Sponsors of clinical trials may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. During the clinical development
of products, sponsors may meet and consult with the FDA in an effort to ensure that the design of their studies will likely provide data both sufficient and relevant for later regulatory approval;
however, no assurance of approvability can be given by the FDA.
The
results of product development, preclinical studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercial shipment of the product. Submission
of an NDA requires the payment of a substantial user fee to the FDA, and although the agency has defined user fee goals that govern the length of an NDA's review time, we cannot assure that the FDA
will make a review decision in any particular timeframe. After the FDA evaluates the NDA and conducts inspections of manufacturing facilities where the drug product and/or its active pharmaceutical
ingredient, or API, will be produced, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete but the application is not ready for approval. A Complete Response
Letter may require additional clinical data and/or an one or more additional clinical trials, as FDA has required of our partner Agile, and/or other requirements related to clinical trials,
preclinical studies or manufacturing, any of which may be expensive and require considerable time to complete. Even if such data are submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval.
After
approving a drug, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if safety problems occur after the product reaches the market. Requirements
for additional Phase 4 studies (post approval marketing studies) to confirm safety and effectiveness in a broader commercial use population may be imposed as a condition of marketing approval.
In addition, the FDA requires surveillance programs to monitor approved products which have been commercialized, and the
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agency
has the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs.
Satisfaction
of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon
the type, complexity and novelty of the pharmaceutical product. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly
procedures upon our activities. We cannot be certain that the FDA or any other regulatory agency will grant approval for any of our pharmaceutical systems under development on a timely basis, if at
all. Success in preclinical or early stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and clinical activities is not always conclusive and
may be susceptible to varying interpretations which could delay, limit or prevent regulatory approval. Evolving safety concerns can result in the imposition of new requirements for expensive and time
consuming tests. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications. Further, even after regulatory approval is obtained, later discovery
of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Any pharmaceutical systems that we may develop and
obtain approval for would also be subject to adverse findings of the active drug ingredients being marketed in different dosage forms and formulations. Delays in obtaining, or failures to obtain
regulatory approvals would have a material adverse effect on our business. Marketing our pharmaceutical systems abroad will require similar regulatory approvals and is subject to similar risks. In
addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action. Our partners are the NDA and ANDA holders and therefore communicate with
FDA with respect to the applications.
Any
drug products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including cGMP requirements, and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic announced and
unannounced inspections by the FDA and state agencies for compliance with cGMP regulations, which impose procedural and documentation requirements upon us and our third party manufacturers. In
addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. We cannot be
certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements.
Future
FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial
resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer
or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. For
example, in 2008 and 2010 we conducted recalls of our fentanyl
products and were inspected by the FDA. These inspections led to the issuance of FDA Forms 483 identifying inspectional observations. The most recent FDA inspection of our facility was a
Pre-Approval Inspection for NDA 20407 and ANDA 90526 (transdermal patches). The FDA issued a three-observation 483, which we addressed as part of our ongoing obligations under the FDA's quality system
regulation.
The
FDA regulates drug labeling and promotion activities. The FDA has actively enforced regulations prohibiting the marketing of products for unapproved uses, and federal and state authorities are
also
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litigating against sponsors who promote their drugs for unapproved uses under various fraud and abuse and false claims act statutes. We and our pharmaceutical systems are also subject to a
variety of state laws and regulations in those states or localities where our pharmaceutical systems are or will be marketed. Any applicable state or local regulations may constrain our ability to
market our pharmaceutical systems in those states or localities. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or
in the future.
The
FDA's policies may change and additional government regulations may be enacted which could prevent or delay regulatory approval of our drug product candidates. Moreover, increased attention to the
containment of health care costs in the U.S. and in foreign markets could result in new government regulations that could have a material adverse effect on our business. We cannot predict the
likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.
The
FDA also has the authority to require a risk evaluation and mitigation strategy (REMS) to ensure the safe use of the drug. The FDA has authority to require a REMS under the Food and Drug
Administration Amendments Act of 2007, or FDAAA, when necessary to ensure that the benefits of a drug outweigh the risks.In determining whether a REMS is necessary, the FDA must consider the size of
the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential
adverse events, and whether the drug is a new molecular entity. If the FDA determines a REMS is necessary, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required
to include various elements, such as a medication guide or patient package insert, a communication plan to educate health care providers of the drug's risks, limitations on who may prescribe or
dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug. In addition, the REMS must include a timetable to assess the strategy at 18 months, three
years, and seven years after the strategy's approval. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is
necessary to ensure that the drug's benefits outweigh its risks.
On
July 9, 2012, the FDA approved a REMS for extended-release and long-acting opioid medications. Several of our currently marketed drug products and investigational drugs, including fentanyl
and buprenorphine, are subject to the REMS. There may be increased cost, administrative burden and potential liability associated with the marketing and sale of drugs subject to the REMS requirement,
which could negatively impact the commercial benefits to us and our partners from the sale of these drug products and, if approved, drug product candidates. Our partners, as the holders of the
marketing applications for the affected drugs, are responsible for compliance with the opioid REMS requirements.
Hatch-Waxman Act.
Section 505 of the FFDC Act describes three types of NDAs that may be submitted to the FDA to request marketing authorization for a new
drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and effectiveness. The Drug Price Competition and Patent Term Restoration Act of 1984,
also known as the Hatch-Waxman Act, created two additional marketing pathways under Sections 505(b)(2) and 505(j) of the FFDC Act. A 505(b)(2) NDA is an application that contains full reports
of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has
not obtained a right of reference. This regulatory pathway enables the applicant to rely, in part, on the FDA's findings of safety and efficacy for an existing product, or published literature, in
support of its application. Section 505(j) establishes an abbreviated approval process for generic version of approved drug products through the submission of an Abbreviated New Drug
Application, or ANDA. An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance
characteristics and intended use, among other things, to a previously
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product. ANDAs are termed "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness. Instead,
generic applicants must scientifically demonstrate that their product is bioequivalent to (i.e., performs in the same manner as) the innovator drug. The generic version generally must deliver
approximately the same amount of active ingredients into a patient's bloodstream in the same amount of time as the innovator drug.
Upon
submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted
to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of
the drug product for which the application is submitted. This last certification is known as a paragraph IV certification. If the paragraph IV certification is challenged by an NDA
holder or the patent owner(s) asserts a patent challenge to the paragraph IV certification, the FDA may not approve that application until the earlier of 30 months from the receipt of
the notice of the paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent was favorably decided in the applicant's favor or such shorter
or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification,
the NDA holder or patent owner(s) regularly take action to trigger the 30 month stay, recognizing that
the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent
certification the applicant makes and the reference drug sponsor's decision to initiate patent litigation.
The
Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application
that relies on the branded reference drug. For example, the holder of an NDA may obtain five years of exclusivity upon approval of a new drug containing a new chemical entity, or NCE, that has not
been previously approved by the FDA. The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval,
or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential
to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDA for drugs that include the
innovation that required the new clinical data.
We
expect that some of our drug candidates will utilize the section 505(b)(2) regulatory pathway. Even though several of our drug products utilize active drug ingredients that are commercially
marketed in the United States in other dosage forms, we need to establish safety and effectiveness of those active ingredients in the formulation and dosage forms that we are developing. We also have
several partnered products that are approved pursuant to ANDAs or will be filed under the ANDA pathway. All approved products, both innovator and generic, are listed in FDA's Approved Drug Products
with Therapeutic Equivalence Evaluations (Orange Book).
The Drug Enforcement Administration.
Certain of our products, including our fentanyl patch, are regulated as a "controlled substance" as defined in the Controlled
Substances Act of 1970, or CSA, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the Drug Enforcement Administration, or
DEA. The DEA is concerned with the control of handlers of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and
diversion into illicit channels of commerce.
The
DEA regulates controlled substances as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and
Schedule V substances the lowest risk. Certain active ingredients such as fentanyl and buprenorphine, are listed by the DEA as Schedule II and Schedule III respectively under the
CSA. Consequently, their manufacture, research, shipment, storage,
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and use are subject to a high degree of oversight and regulation. For example, all Schedule II drug prescriptions must be signed by a physician, generally physically presented to a
pharmacist and may not be
refilled without a new prescription. Furthermore, the amount of Schedule II substances we can obtain for clinical trials and commercial distribution is limited by the DEA in accordance with a
quota system and our quota may not be sufficient to complete clinical trials or meet commercial demand. The DEA establishes annually an aggregate quota for how much fentanyl may be produced in total
in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of fentanyl that the DEA allows to be produced
in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We must receive an annual
quota from the DEA in order to produce or procure any Schedule II substance, including fentanyl for use in manufacturing our fentanyl products. The DEA may adjust aggregate production quotas
and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments.
Annual
registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location,
activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are
authorized.
The
DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements
applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages,
surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distribution reports for
Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be made for thefts or losses of any controlled
substance, and to obtain authorization to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.
Failure
to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in enforcement action that could have a material adverse effect on our
business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain
circumstances, violations could eventuate in criminal proceedings. Individual states also regulate controlled substances, and we and our partners will be subject to state regulation on distribution of
these products.
There
is a risk that DEA regulations may interfere with the supply of the drugs used in our clinical trials and sold commercially, and, thus on our ability to produce and distribute our products in
the volume needed to meet clinical and commercial demand.
FDA Regulation of Consumer Cosmetic Products.
Consumer teeth whitening products are regulated by the FDA as cosmetics. The processing, formulation, safety,
manufacturing, packaging, labeling, advertising and distribution of these products are subject to regulation by one or more federal agencies, including the FDA and the Federal Trade Commission, or
FTC, and by various agencies of the states and localities in which these products are sold.
Cosmetic products and their ingredients do not require premarket approval prior to sale, but are subject to specific labeling regulations. While the FDA has not promulgated specific cGMPs for the
manufacture of cosmetics, the FDA has provided guidelines for cosmetic manufacturers to follow to ensure that their products are neither misbranded or adulterated.
The
FTC exercises jurisdiction over the advertising of cosmetics. In recent years, the FTC has instituted numerous enforcement actions against companies for failure to have adequate substantiation for
claims
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made
in advertising or for the use of false or misleading advertising claims. We are also subject to regulation under various state, local, and international laws that include provisions governing,
among other things, the formulation, manufacturing, packaging, labeling, advertising, and distribution of cosmetics.
Other Healthcare Laws.
Although we do not directly market or promote any of our products, we and our partners are subject to additional healthcare regulation and
enforcement by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws may include, without limitation: (a) federal and
state laws relating to the Medicare and Medicaid programs and any other federal healthcare program; (b) federal and state laws relating to healthcare fraud and abuse, including, without
limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the federal False Claims Act (31 U.S.C. §§ 3729 et seq.), the
False Statements Statute, (42 U.S.C. § 1320a-7b(a)), the Exclusion Laws (42 U.S.C. § 1320a-7), the federal Physician Payment Sunshine Act
(42 U.S.C. § 1320a-7h), the Anti-Inducement Statute (42 U.S.C. § 1320a-7a(a)(5)), the Civil Monetary Penalties Law (42 U.S.C.
§ 1320a-7a) and criminal laws relating to healthcare fraud and abuse, including but not limited to 18 U.S.C. Section 286 and 287, and the Health Insurance Portability
and Accountability Act of 1996, or HIPAA (Pub.L. 104-191); (c) state laws relating to Medicaid or any other state healthcare or health insurance programs; (d) federal or state
laws relating to billing or claims for reimbursement submitted to any third party payor, employer or similar entity, or patient; (e) any other federal or state laws relating to fraudulent,
abusive or unlawful practices connected in any way with the provision or marketing of healthcare items or services, including laws relating to the billing or submitting of claims for reimbursement for
any items or services reimbursable under any state, federal or other governmental healthcare or health insurance program or any private payor; and (f) federal and state laws relating to health
information privacy and security, including HIPAA, and any rules or regulations promulgated thereunder, the Health Information Technology for Economic and Clinical Health Act, or HITECH, enacted as
part of the American Recovery and Reinvestment Act of 2009 and any regulations promulgated thereunder. If our operations or our partners' operations and practices are found to be in violation of any
of such laws or any other governmental regulations that apply to us or our partners, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or
restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and
our financial results.
Coverage and Reimbursement.
Sales of our products marketed by our partners will depend, in part, on the extent to which our products will be covered by third-party
payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for certain medical
products and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing
controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our products or a decision by a third-party payor to not cover our products could
reduce or eliminate utilization of our products and have a material adverse effect on our sales, results of operations and financial condition. In addition, state and federal healthcare reform
measures have been and will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in
reduced demand for our products or additional pricing pressures.
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Marketing and Sales
Due to the nature of our partnerships and our current business relationships, we currently do not have or require an in-house commercial sales force
or marketing function. We have a business development program that generates new business opportunities with pharmaceutical and biopharma companies, including delivering their proprietary drugs in
transdermal systems to improve their therapeutic profile, extending the brand life of drugs by offering new dosage formats, and co-developing products that we have initiated. Historically, we have
partnered with pharmaceutical companies to market and sell each of the products that we develop and manufacture. In most cases, we work together with our partners to decide which products to develop.
However, in some instances we selectively develop products on our own prior to partnering with another company. In the future, we may build our own commercial sales and marketing capability in certain
niche markets in order to capture more of the economic value of the products that we may develop. We may also enter into co-promotion agreements for certain of our products with our partners. We will
continue to pursue strategic alliances with partners who have significant marketing and distribution presence and expertise.
Competition
Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face
competition from other companies in numerous industries, including pharmaceuticals and drug delivery. We believe the key competitive factors that will affect the commercial success of our products and
the development of our product candidates include onset of action, bioavailability, efficacy, compliance, cost, convenience of dosing, safety and tolerability profile.
Companies
focused on delivering small molecules transdermally include 3M, Johnson & Johnson, Lohmann Therapies Systems, or LTS, Mylan, Hisamitsu, or Noven, and Actavis. Companies operating in
the microneedle transdermal field include 3M, Zosano, Theraject and Fujifilm. Several academic institutions are also conducting research in the microneedle field. In addition to microneedle
technologies, there are other methods of transdermal delivery under development for biologics, including heat ablation, laser, ultrasound and radio frequency. Companies developing and manufacturing
transdermal systems for biologics include Becton Dickinson, Vyteris, and Zogenix. Some of these companies may be addressing the same therapeutic areas or indications as we are.
Our
current products compete, and products in development will compete, in highly competitive markets against both transdermal products and products addressing similar patient and customer needs
through other delivery forms. Clonidine TDS, Fentanyl TDS and our future ANDA products will have competition from other generic pharmaceutical companies, including Mylan and Actavis, both of which
have their own transdermal manufacturing capability. Other manufacturers of fentanyl patches use a different technology than ours, and although fentanyl patches made with either technology have
experienced manufacturing challenges, competitors may claim their technology is superior. The Crest Whitestrips products compete with teeth whitening products marketed by various private labels such
as those at Walgreens and CVS.
Many
of our existing and potential competitors have substantially greater financial, research and development, and human resources than we do, may succeed in obtaining patent protection before us, and
have greater experience than we do commercializing products and developing product candidates, including obtaining FDA and other regulatory approvals for product candidates. Consequently, our
competitors are applying significant resources and experience to the problems of drug delivery and transdermal drug delivery in particular. We cannot assure you that our transdermal delivery systems
will compete effectively against existing and future transdermal or other delivery systems.
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Employees
As of January 31, 2014 we had 243 employees, including 29 in research and development, 196 in operations and 18 in general and administrative
roles. From time to time, we also employ independent contractors to support our research and development and our administrative organizations. We also hire temporary employees when needed in our
manufacturing and quality groups. None of our employees are represented by a collective bargaining unit, and we have never experienced a work stoppage. We consider our relations with our employees to
be good.
Legal Proceedings
Historically, there has been litigation surrounding the Fentanyl TDS product that we manufacture for Par, in which we are named as a co-defendant with
Actavis. We have had 19 past legal proceedings related to this product. The settlement amounts were shared equally with our partner and were not material. Eighteen of the cases have been dismissed
with prejudice, and one case is pending. On August 3, 2012, a wrongful death lawsuit was filed against us in the U.S. District Court for the Northern District of Texas,
Boudreaux vs. Corium International, Inc., et
al.
Plaintiffs have alleged a family member died in connection with the use of Fentanyl TDS. The amount of
the damages has not been specified. For this pending suit, we have insurance coverage up to $10 million with a maximum liability of $50,000 of out-of-pocket expense. We do not believe that the
case has merit and plan to defend against this claim.
Facilities
Our principal executive offices and research and development operations are located in Menlo Park, California, in a 25,000 square foot building which
houses full product research and development capabilities, including proprietary drug delivery research in novel polymer blending and formulations; system design and engineering; prototyping and pilot
manufacturing; analytical, quality assurance and quality control; early nonclinical and clinical development; and regulatory capabilities for clinical development and pilot scale manufacture. We have
been in our current Menlo Park location for seven years and the term of our current Menlo Park lease has been extended to December 2014. We are also evaluating opportunities for facility expansion.
Our
manufacturing facilities are located in Grand Rapids, Michigan in three buildings comprising approximately 200,000 square feet. We manufacture all of our current commercial products at these
facilities. We also perform process development, prototyping, pilot and commercial manufacturing and quality control in our labs in Grand
Rapids. We are qualified for prescription transdermal, dermal, mucosal and wound care products as well as OTC products. The facility is FDA and DEA registered and ISO9001 and ISO13485 certified.
We
lease two of our three existing buildings in Grand Rapids on a long term basis. One building is dedicated exclusively to shipping and receiving, inventory and warehousing, but the space has been
improved for multipurpose use. Our warehouse lease will expire in 2015. The other two buildings house all commercial manufacturing as well as administrative offices. We also own a four acre lot across
the street from the commercial manufacturing operations for planned future expansion.
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MANAGEMENT
Executive Officers and Directors
The following table provides information regarding our executive officers and directors as of December 31, 2013:
Name
Age
Position(s)
Peter D. Staple
62
President, Chief Executive Officer and Director
Robert S. Breuil
52
Chief Financial Officer
Parminder Singh
50
Chief Technology Officer and Vice President, Research and Development
David Greenwood
(1)
62
Director, Executive Chairman
Bhaskar Chaudhuri
(1)
(3)
59
Director
Gary W. Cleary
71
Director
Ronald Eastman
(2)
(3)
61
Director
Phyllis Gardner
63
Director
John W. Kozarich
64
Director
Robert W. Thomas
(1)
(2)
52
Director
Daniel G. Welch
(2)
(3)
56
Director
(1)
Member
of the Audit Committee.
(2)
Member
of the Compensation Committee.
(3)
Member
of the Nominating and Governance Committee.
Executive Officers
Peter D. Staple.
Mr. Staple has served as our President, Chief Executive Officer and a director on our board since March 2008. He previously served as
Chief Executive Officer of BioSeek, Inc., a drug discovery company applying
predictive human biology, from 2002 to 2007 and was a director at BioSeek from 2002 to 2008. Prior to BioSeek, starting in 1994, he had various positions at ALZA Corporation, an early leader in
the field of oral and transdermal drug delivery, from 1994 to 2001, most recently as Executive Vice President, Chief Administrative Officer and General Counsel, until ALZA's merger with
Johnson & Johnson, or J&J, in 2001. Prior to joining ALZA, Mr. Staple served in senior positions at Cetus and Chiron Corporations, each a biotechnology company. Prior to entering the
biotechnology industry, Mr. Staple practiced corporate and securities law with Heller Ehrman LLP, a law firm. Mr. Staple serves as chairman of the board of directors of
Depomed, Inc. He holds B.A. and J.D. degrees from Stanford University. Our board believes that Mr. Staple's experience in the biotechnology and drug delivery businesses and
management expertise qualify him to serve as a member of the board.
Robert S. Breuil.
Mr. Breuil joined Corium in September 2012. Prior to that, he served as the Chief Financial Officer of Codexis, Inc., a
developer of biocatalysts for the pharmaceutical and fine chemical production industries, from 2006 to September 2009. From 2002 to 2005, Mr. Breuil was the Chief Financial Officer of
Aerogen, Inc., a specialty pharmaceutical company focusing on the field of aerosolized drug delivery, which was acquired by Nektar Therapeutics in October 2005. Prior to Aerogen,
Mr. Breuil worked at ALZA, where he held numerous positions including Director of Corporate Planning and Analysis and Controller. In 2001, ALZA was acquired by J&J and Mr. Breuil stayed
on as Controller until joining Aerogen in 2002. Before his industry experience, he served for eight years as a naval officer and aviator. Mr. Breuil received a B.S. from the United States Naval
Academy and an M.B.A. from the Stanford Graduate School of Business.
Parminder Singh, Ph.D.
Dr. Singh joined Corium in 2002. Prior to working at Corium, Dr. Singh held research and development and senior management
positions at Novartis International AG, an international
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pharmaceutical
company, Ciba-Geigy AG, a pharmaceutical company that merged into Novartis and Vyteris, Inc., a specialty pharmaceutical company developing and producing transdermal
systems. Dr. Singh holds a B.Pharm and an M.Pharm from Punjab University in India. He received his Ph.D. in Pharmaceutics from the University of Queensland, Australia and completed his
post-doctorate fellowship at the University of California, San Francisco. He is a member of the American Association of Pharmaceutical Scientists and the Controlled Release Society.
Directors
David L. Greenwood.
Mr. Greenwood has served on our board of directors since December 2010, and as our Executive Chairman since June 2012. Beginning in July
2013, Mr. Greenwood became a full time employee of our company, with primary responsibility in strategic positioning and financing. He is the former President, Chief Executive Officer, Chief
Financial Officer and Director of Geron where he worked from 1995 until December 2011. He was previously on the board of directors of Geron's wholly-owned subsidiary, Geron Bio-Med Limited, Geron's
majority-owned subsidiary, TA Therapeutics, Ltd., ViaGen, Inc., and Clone International. He also served on the Board of Regents for Pacific Lutheran University. From 1979 until
joining Geron, Mr. Greenwood held various positions with J.P. Morgan & Co. Incorporated, an international banking firm. Mr. Greenwood holds a B.A. from Pacific
Lutheran University and a M.B.A. from Harvard Business School. Our board believes that Mr. Greenwood's financial and business expertise in the biotech industry qualify him to serve as a member
of the board.
Bhaskar Chaudhuri, Ph.D.
Dr. Chaudhuri has served on our board of directors since February 2010. He has been an operating partner of Frazier Healthcare since
July 2011. He served as President of Valeant Pharmaceuticals International, or Valeant, a pharmaceutical company with a diverse range of products, from January 2009 to September 2010. Prior to
Valeant, Dr. Chaudhuri served for seven years as Chief Executive Officer and President of Dow Pharmaceutical Sciences, Inc., a dermatology company specializing in the development of
topical products that was acquired by Valeant. Before joining Dow, he served as General Manager of the Dermatology Division of Mylan Laboratories, and as Executive Vice President of Scientific Affairs
at Bertek Pharmaceuticals, a subsidiary of Mylan, where he was responsible for research and development activities as well as certain of the company's manufacturing operations. Prior to this, he
served as Vice President of Research and Development at Penederm, Inc., a skin-products and drug delivery company. He sits on the board of directors at IGI Laboratories, Inc. and Silvergate
Pharmaceuticals, Inc. Dr. Chaudhuri holds a B.Pharm and an M.Pharm from Jadavpur University in India and a Pharm.D from the University of Louisiana. Our board believes that
Dr. Chaudhuri's industry management experience gives him extensive product development and commercialization knowledge which qualifies him to serve as a member of the board.
Gary W. Cleary, Ph.D.
Dr. Cleary has served on our board of directors since 2002. Dr. Cleary is a co-founder and Scientific Advisor of Corium. During
his career, he held research and management positions at the FDA, ALZA, Key Pharmaceuticals, Genentech, Inc., and Cygnus, Inc., a company that developed the Ortho-Evra Patch and
self-monitoring devices for glucose measurements. Dr. Cleary founded Cygnus in 1985 and served as its President, Chairman and Scientific Advisor. Early in his career, Dr. Cleary served
for three years in the U.S. Public Health Service. Dr. Cleary is a Fellow of the American Association of Pharmaceutical Scientists and the American Institute of Medical and Biomedical
Engineering and past president of the Controlled Release Society. Dr. Cleary is currently a member of Rutgers University's Biomedical Engineering Advisory Board, and the Pharmaceutical Advisory
Boards of the University of California, San Francisco, the University of Pacific and Appian Labs, LLC. Dr. Cleary earned a Pharm.D. degree from the University of California, San
Francisco, an M.B.A. in health sciences from the University of Miami, and a Ph.D. in pharmaceutics from Rutgers University. Our board believes that Dr. Cleary's deep institutional knowledge of
Corium and our technologies and his scientific expertise qualify him to serve as a member of the board.
Ronald Eastman.
Mr. Eastman has served on our board of directors since 2007. Mr. Eastman joined Essex Woodlands Health Ventures, or Essex Woodlands,
in October 2006, as a managing director. Prior to joining
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Essex
Woodlands, Mr. Eastman was Chief Executive Officer at Rinat Neuroscience, a private biotech company spun out of Genentech in late 2001. Rinat was acquired by Pfizer in 2006. From 1996 to
1999 he was Chief Executive Officer at Geron Corporation, or Geron, a biotech company in the fields of regenerative medicine and cancer. From 1999 to 2002, Mr. Eastman had a leadership position
with HCORP, a hospital-based, interactive patient services company, which was acquired by a competitor in 2001. He began his career at American Cyanamid Company, which was acquired by American Home
Products (now Pfizer), where he held jobs with increasing responsibility. He currently serves as Chairman of the board of directors at Elusys Therapeutics, and several other private companies.
Mr. Eastman served on the board of directors at The Buck Institute, the largest non-profit research institute in the United States studying diseases of aging. Mr. Eastman holds a B.A.
from Williams College and an M.B.A. from Columbia University. Our board believes that Mr. Eastman's experience in the biotech industry and management expertise qualify him to serve as a member
of the board.
Phyllis Gardner, M.D.
Dr. Gardner has served on our board of directors since 2007. Dr. Gardner is currently a Professor of Medicine at Stanford
University, where she has held several positions since she began there in 1984, including Senior Associate Dean for Education and Student Affairs. She has also been an adjunct partner at Essex
Woodlands since 1999. From 1994 to 1996, she took a leave of absence to work at ALZA as a Principal Scientist, Vice President of Research and as Head of ALZA Technology Institute. She has received
numerous national awards and honors and serves on the board of directors of Revance Therapeutics, Dr. Gardner holds a B.S. from the University of Illinois and an M.D. from Harvard Medical
School. She trained in internal medicine at Massachusetts General Hospital, followed by a Chief Residency at Stanford University Medical Center. She completed research fellowships at the College of
Physicians and Surgeons at Columbia University and University College, London, U.K. Our board believes that Dr. Gardner's expertise in medicine, pharmacology and drug delivery systems qualify
her to serve as a member of the board.
John W. Kozarich, Ph.D.
Dr. Kozarich has served on our board of directors since 2007. He has been the President, Chief Science Officer and chairman of the
board of directors of ActivX Biosciences, Inc., a company specializing in drug delivery technology, since February 2001. Dr. Kozarich previously served as a Vice President at Merck
Research Laboratories, from 1992 to 2001 where he was responsible for programs including antimicrobial drug discovery, enzymology, 5a-reductase biology, lipid biochemistry, nuclear receptors, ion
channels and structural biology. Previously, Dr. Kozarich held faculty positions at the University of Maryland, College Park, and Yale University School of Medicine. He also served as Vice
President, Research and Development at Alkermes, a biotechnology company that develops products based on sophisticated drug delivery technologies. He is the chairman of the board of directors of
Ligand Pharmaceuticals, Inc., the Chief Pharmaceutical Advisor to KinDex
Therapeutics, Inc., and the Chief Scientific Advisor for Kyorin Pharmaceutical Co. Dr. Kozarich has also served on numerous government and academic committees. Dr. Kozarich
received a B.S. in chemistry from Boston College and a Ph.D. in biological chemistry from the Massachusetts Institute of Technology, where he was a National Science Foundation pre-doctoral Fellow. He
was a National Institutes of Health post-doctoral Fellow at Harvard University. Our board believes that Dr. Kozarich's experience in biomedical research and leadership experience in the
pharmaceutical industry qualify him to serve as a member of the board.
Robert W. Thomas.
Mr. Thomas has served on our board of directors since 2007, and from 2007 to 2008 served as our Chief Executive Officer. Since
March 2013, he has been a partner at Aphelion Capital, LLC, a venture capital firm focused on medical technology. From 1998 until 2006, he served as the President, Chief Executive
Officer and member of the board directors of Fox Hollow Technologies, Inc. a medical device company specializing in the design, development and manufacture of devices for the treatment of
peripheral artery disease, and prior to serving as President and Chief Executive Officer, Mr. Thomas was Vice President of Operations for Fox Hollow. From 1997 through 1998, Mr. Thomas
was Vice President of Operations for the women's health company, Conceptus Inc., and prior to that was the founder of Thomas Medical, Inc., a private medical device company that was
ultimately sold to GE Healthcare. Mr. Thomas also was a manager and director of operations at Access Devices, where he worked from 1984 to 1990,
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which
was acquired by Baxter Healthcare. From 2006 until its acquisition by Stryker in 2011, Mr. Thomas served as a member of the board of directors of Concentric Medical, Inc. From 2009
until January 2013, Mr. Thomas served as a member of the board of directors of CV Ingenuity Corp. and Mr. Thomas currently serves as a member of the board of directors for
TriVascular, Inc. Mr. Thomas received a B.A. from Ursinus College. Our board believes that Dr. Thomas' extensive industry management and operations background experience qualify
him to serve as a member of the board.
Daniel G. Welch.
Mr. Welch has served on our board of directors since 2007. Mr. Welch serves as Chairman, Chief Executive Officer and President of
InterMune Inc., a biotech company focused on research, development, and commercialization of therapies for pulmonology and fibrotic diseases, and as a member of the board of directors of
InterMune, where he has worked since 2003. Before joining InterMune, Mr. Welch served as a consultant to Warburg Pincus LLC, a global private equity investment firm. From 2002 to 2003,
Mr. Welch served as chairman and chief executive officer of Triangle Pharmaceuticals, Inc., a pharmaceutical company. From 2000 to 2002, Mr. Welch served as president of the
pharmaceutical division of Elan Corporation, plc. From 1987 to 2000, Mr. Welch served in various senior management roles at Sanofi (now Sanofi-Aventis) and its predecessor companies
Sanofi and Sterling Winthrop. From 1980 to 1987, Mr. Welch was with American Critical Care, a division of American Hospital Supply. Mr. Welch has served on the board of directors of
Hyperion Therapeutics, Inc. since August 2012 and on the board of directors of Seattle Genetics since 2006, Mr. Welch holds a B.B.A. from the University of Miami and an M.B.A.
from the University of North Carolina. Our board believes that Mr. Welch's deep
understanding of operational and financial aspects of pharmaceutical companies qualify him to serve as a member of the board.
Appointment of Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships among any of our
directors or executive officers.
Board Composition
Our board of directors may establish the authorized number of directors from time to time by resolution. Our board of directors currently consists of
nine members. Our current certificate of incorporation and a voting agreement among certain investors provide for up to six directors to be designated by holders of our preferred stock.
Mr. Eastman, Dr. Gardner and Mr. Welch are the board designees of holders of our preferred stock and the remaining seats reserved for designees of holders of the preferred stock
are vacant.
The
voting agreement and the provisions of our certificate of incorporation by which Mr. Eastman, Dr. Gardner and Mr. Welch were elected will terminate in connection with our
initial public offering and there will be no contractual obligations regarding the election of our directors. Each of our current directors will continue to serve until the election and qualification
of his or her successor, or his or her earlier death, resignation or removal.
Because
Mr. Eastman and his affiliates beneficially own more than a majority of our outstanding voting power, we are eligible to be a "controlled company" under the corporate governance rules
of the NASDAQ Global Market. A company that avails itself of the controlled company exemption is not required to have a majority of its board of directors to be independent, nor is it required to have
a compensation committee, a nominating and corporate governance committee or an independent nominating function, among other stock exchange listing requirements for companies that are not controlled
companies. We have no current plans to avail ourselves of this exemption, and plan to comply with the stock exchange listing requirements for companies that are not controlled companies, but we could
elect in the future to avail ourselves of this exemption.
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Classified Board
Our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering provide for a classified
board of directors consisting of three classes of directors, each serving staggered three-year terms. Our directors will be divided among the three classes as
follows:
•
Class I directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2015, will consist
of                      and                   
   ;
•
Class II directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2016, will consist
of                      and                   
   ; and
•
Class III directors, whose initial term will expire at the annual
meeting of stockholders to be held in 2017, will consist
of                      and                   
                         .
•
Directors in a particular class will be elected for three-year terms at the
annual meeting of stockholders in the year in which their terms expire. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms. Each director's term continues until the election and qualification of his or her successor, or his or her earlier death, resignation
or removal.
Our
restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering authorize only our board of directors to fill vacancies on our board of
directors. Any additional directorships resulting from an increase in the authorized number of directors would be distributed among the three classes so that, as nearly as possible, each class would
consist of one-third of the authorized number of directors.
The
classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See "Description of Capital Stock—Anti-Takeover
Provisions—Restated Certificate of Incorporation and Restated Bylaw Provisions."
Director Independence
Our common stock will be listed on the NASDAQ Global Market. The listing rules of this stock exchange generally require that a majority of the members
of a listed company's board of directors be independent within specified periods following the closing of an initial public offering. Our board of directors has determined that none of our
non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is
"independent" as that term is defined under the rules of the NASDAQ Global Market.
Audit
committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a
member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: accept, directly
or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or be an affiliated person of the listed company or any of its subsidiaries. We
intend to satisfy the audit committee independence requirements of Rule 10A-3 within the one year transition period provided by Rule 10A-3 and the current NASDAQ rules.
Board Committees
Our board of directors has established an audit committee, a compensation committee, and a nominating and governance committee. Each of these
committees will have the composition and responsibilities described below as of the closing of our initial public offering. Members serve on these committees until their resignations or until
otherwise determined by our board of directors.
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Audit Committee
Our audit committee is comprised of Dr. Chaudhuri, Mr. Thomas and Mr. Greenwood. Mr. Greenwood is the chairman of our
audit committee. Dr. Chaudhuri and Mr. Thomas each meet the requirements for independence under the current NASDAQ and SEC rules and regulations. Each member of our audit committee is
financially literate. In addition, our board of directors has determined that Mr. Greenwood is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of
Regulation S-K promulgated under the Securities Act. This designation does not impose on him any duties, obligations or liabilities that are greater than are generally imposed on members of our
audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
•
selecting the independent registered public accounting firm to audit our
financial statements;
•
ensuring the independence of the independent registered public accounting
firm;
•
discussing the scope and results of the audit with the independent
registered public accounting firm, and reviewing, with management and that firm, our interim and year-end operating results;
•
establishing procedures for employees to submit anonymously concerns about
questionable accounting or audit matters;
•
considering the adequacy of our internal controls and internal audit
function;
•
reviewing material related party transactions or those that require
disclosure; and
•
approving or, as permitted, pre-approving all audit and non-audit services
to be performed by the independent registered public accounting firm.
Compensation Committee
Our compensation committee is comprised of Mr. Eastman, Mr. Thomas and Mr. Welch. Mr. Welch is the chairman of our
compensation committee. Each member of this committee meets the requirements for independence under the current NASDAQ and SEC rules and regulations and is an outside director, as defined pursuant to
Section 162(m) of the Internal Revenue Code of 1984, as amended, or the Code. Our compensation committee is responsible for, among other
things:
•
reviewing and approving, or recommending that our board of directors
approve, the compensation of our executive officers;
•
reviewing and recommending to our board of directors the compensation of our
directors;
•
reviewing and approving, or recommending that our board of directors
approve, the terms of any compensatory agreements with our executive officers;
•
administering our stock and equity incentive plans;
•
reviewing and approving, or making recommendations to our board of directors
with respect to, incentive compensation and equity plans; and
•
reviewing our overall compensation philosophy.
Nominating and Governance Committee
Our nominating and governance committee is comprised of Dr. Chaudhuri, Mr. Eastman and Mr. Welch. Dr. Chaudhuri is the
chairman of our nominating and governance committee. Each member of the nominating and governance committee meets the requirements for independence under the current NASDAQ rules and regulations. Our
nominating and governance committee is responsible for, among other things:
•
identifying and recommending candidates for membership on our board of
directors;
•
developing, reviewing and recommending our corporate governance guidelines
and policies;
•
reviewing proposed waivers of the code of conduct for directors and
executive officers; and
•
assisting our board of directors on corporate governance matters.
We
have made our committee charters available on our website at www.coriumgroup.com.
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Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any
entity that has one or more executive officers who served on our board of directors or compensation committee during fiscal 2013.
Code of Business Ethics and Conduct
In connection with our initial public offering, our board of directors will adopt a code of business ethics and conduct that will apply to all of our
employees, officers and directors. The full text of our code of business conduct will be posted on the Investor Relations section of our website. The reference to our website address in this
prospectus does not include or incorporate by reference the information on our website into this prospectus. We intend to disclose future amendments to certain provisions of our code of business
conduct, or waivers of these provisions, on our website or in public filings.
Director Compensation
The following table presents the total compensation earned in fiscal 2013 for each member of our board of directors, except for our CEO,
Mr. Staple, who receives no additional compensation for his service as a director. Other than as described in the table below, none of our directors, except Mr. Staple, received fees or
reimbursement of any expenses (other than customary expenses in connection with the attendance of meetings of our board of directors) or any equity or non-equity awards in fiscal 2013.
Mr. Staple's compensation is described below in the section titled "Executive Compensation."
Director Name
Fees Earned
or Paid in Cash
($)
Option Awards
($)
(1)
(2)
All Other
Compensation
($)
Total
($)
Bhaskar Chaudhuri
15,000
55,619
—
70,619
Gary W. Cleary
—
35,315
(3)
35,315
Ronald Eastman
—
—
—
—
Phyllis Gardner
11,500
—
—
11,500
David Greenwood
109,063
223,607
62,361
(4)
395,031
John Kozarich
13,500
6,955
(5)
—
20,455
Robert W. Thomas
19,000
—
—
19,000
Daniel G. Welch
16,000
—
—
16,000
(1)
The
amounts reported in the Option Awards column represent the grant date fair market value of the stock options granted under the 2012 Equity
Incentive Plan during fiscal 2013 as computed in accordance with ASC 718. The assumptions used in calculating the dollar amount recognized for financial statement reporting purposes of the
equity awards reported in this column are set forth in note 11 to our financial statements included in this prospectus. Note that the amounts reported in the column reflect the accounting cost
for these stock options, and do not correspond to the actual economic value that may be received by the directors from the stock options.
(2)
As
of September 30, 2013, Mr. Greenwood held options to purchase up to 1,388,862 shares of common stock, Mr. Thomas held
options to purchase up to 359,650 shares of common stock and Dr. Chaudhuri, Dr. Gardner, Dr. Kozarich and Mr. Welch each held options to purchase up to 345,460 shares of
common stock.
(3)
Represents
compensation paid to Dr. Cleary for services as an employee. Dr. Cleary received no compensation for services as a
director.
(4)
Represents
compensation paid to Mr. Greenwood for services as an employee.
(5)
Includes
the fair value of an option to purchase shares of common stock that was issued in an option exchange in November 2012.
In January 2014, we granted stock options to most of our directors in order to bring their total equity grants to competitive levels. These option grants, other
than those made to Mr. Greenwood, vest monthly over a three-year period following the grant date of January 26, 2014. Mr. Greenwood's option to purchase 325,000 shares of common
stock vests monthly over a four-year period following the date of grant of January 27, 2014. Mr. Greenwood's option to purchase 250,000 shares of common stock vests monthly
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over
a four-year period following the effective date of our initial public offering. All of these option grants have an exercise price of $0.41 per share and were granted in the following amounts:
Name
Number of Shares
Underlying Option Grants
Bhaskar Chaudhuri
80,000
Phyllis Gardner
80,000
David Greenwood
575,000
John Kozarich
80,000
Robert W. Thomas
80,000
Daniel G. Welch
80,000
Our board of directors adopted a compensation policy applicable to all of our non-employee directors for cash retainers. This compensation policy provides that
each such non-employee director will receive the following compensation for board of director services:
•
an annual cash retainer for serving on the board of directors of $12,000;
•
a fee of $1,500 paid for each board meeting attended;
•
a fee of $500 paid for each committee meeting attended; and
•
a fee of $500 paid for each telephonic meeting attended.
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EXECUTIVE COMPENSATION
The following tables and accompanying narrative disclosure set forth information about the compensation provided to our senior executive officers
during fiscal 2013. These executive officers, who include our principal executive officer and the two other most highly-compensated executive officers who were serving as executive officers as of
September 30, 2013, the end of our last completed fiscal year were:
•
Peter D. Staple, President, Chief Executive Officer and Director;
•
Robert S. Breuil, Chief Financial Officer; and
•
Parminder Singh, Chief Technology Officer and Vice President, Research and
Development.
We
refer to these individuals in this section as our "Named Executive Officers."
Summary Compensation Table
The following table presents summary information regarding the total compensation for services rendered in all capacities that was awarded to, earned
by, and paid to our Named Executive Officers during fiscal 2013.
Name and Principal Position
Salary
($)
Option
Awards
($)
(1)
Non-equity
Incentive Plan
Compensation
($)
(2)
All Other
Compensation
($)
Total
($)
Peter D. Staple
President, Chief Executive Officer and Director
418,591
319,816
3,619
(3)
932,026
Robert S. Breuil
Chief Financial Officer
343,942
291,600
7,595
(4)
663,137
Parminder Singh
Chief Technology Officer and Vice President, Research and Development
282,140
153,534
(5)
2,859
(6)
488,533
(1)
The
amounts reported in the Option Awards column represent the grant date fair market value of the stock options granted to the Named
Executive Officers during fiscal 2013 as computed in accordance with ASC 718. The assumptions used in calculating the dollar amount recognized for financial statement reporting purposes of the
equity awards reported in this column are set forth in note 11 to our financial statements included in this prospectus. Note that the amounts reported in the column reflect the accounting cost
for these stock options, and do not correspond to the actual economic value that may be received by the Named Executive Officers from the options.
(2)
Bonuses
to be paid for fiscal 2013 have not yet been determined.
(3)
Includes
life insurance premiums of $320 and contributions to the officer's 401(k) plan account of $3,299.
(4)
Includes
pre-employment consulting fees of $7,275 and life insurance premiums of $320.
(5)
Includes
the fair value of an option to purchase shares of common stock that was issued in an option exchange in November 2012.
(6)
Includes
life insurance premiums of $320 and contributions to the officer's 401(k) plan account of $2,539.
In January 2014, the compensation committee of our board of directors granted stock options to each of our Named Executive Officers, as well as to a significant
number of our other employees. The grants to our Named Executive Officers, in connection with the determination of their total compensation, were intended to strengthen the long-term component of each
such officer's compensation, provide further retention incentives for these officers and emphasize incentive-based compensation. The January 2014 option grants
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vest
monthly over a four-year period following the grant date of January 27, 2014, have an exercise price of $0.41 per share, and were granted to each of our Named Executive Officers in the
following amounts:
Name
Number of Shares
Underlying Option Grants
Peter D. Staple
1,280,000
Robert S. Breuil
420,000
Parminder Singh
350,000
Outstanding Equity Awards at Year-End Table
The following table provides information regarding each unexercised stock option held by our Named Executive Officers as of September 30, 2013.
Option Awards
Name
Grant Date
Vesting
Commencement
Date
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Peter D. Staple
08/26/2008
03/26/2008
3,578,600
—
$
0.210
08/25/2018
12/13/2012
12/13/2012
81,164
351,715
(1)
(2)
$
0.220
12/12/2022
12/13/2012
N/A
—
1,111,089
(3)
$
0.220
12/12/2022
02/20/2013
02/20/2013
63,128
369,751
(2)
(4)
$
0.220
02/19/2023
Robert S. Breuil
12/13/2012
09/04/2012
450,000
1,350,000
(1)
(2)
$
0.220
12/12/2022
Parminder Singh
07/21/2004
09/30/2003
30,000
—
$
0.234
07/20/2014
09/30/2004
03/31/2004
30,000
—
$
0.234
09/29/2014
02/12/2008
02/12/2008
150,000
—
$
0.210
02/11/2018
11/12/2012
N/A
440,000
(5)
—
$
0.220
11/11/2022
12/13/2012
12/13/2012
63,750
276,250
(4)
$
0.220
12/12/2022
02/20/2013
02/20/2013
49,583
290,417
(4)
$
0.220
02/19/2023
(1)
Shares
subject to the stock options vest over a four year period, with 1/4
th
of the shares vesting on the first
anniversary of the vesting commencement date and 1/48
th
of the shares vesting each month following the first anniversary of the vesting commencement date, subject to continued
service with us through each vesting date.
(2)
Shares
subject to the stock options vest 100% upon a qualifying termination of the officer's employment with us following a change in control,
as described under "—Potential Payments upon Termination or Change of Control."
(3)
Shares
subject to the stock options vest 100% upon certain events occurring not later than July 13, 2015.
(4)
Shares
subject to the stock options vest over a four year period, with 1/48
th
of the shares vesting each month following
the vesting commencement date, subject to continued service with us through each vesting date.
(5)
These
shares were issued in connection with the November 12, 2012 stock option exchange and were fully vested at the time of the
exchange.
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Offer Letters and Employment Arrangements
Mr. Staple's Employment Offer Letter
On March 14, 2008, we entered into an employment offer letter with Mr. Staple in connection with his appointment as our President and
Chief Executive Officer. His employment agreement provided for an annual base salary of $375,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and
other employee benefits as we established for our employees from time to time. In addition, we committed to grant him an option to purchase 3,537,214 shares of our common stock, with an exercise price
equal to the fair market value of our common stock on the date of grant. Mr. Staple's employment offer was subject to his execution of our standard employee proprietary information and
inventions assignment agreement. Mr. Staple's offer letter provides for "at will" employment.
If
we terminate Mr. Staple's employment within one year of a liquidation event (as defined in his offer letter) without cause (as defined in his offer letter), or if after a liquidation event,
Mr. Staple resigns for good reason (as defined in his offer letter) and he delivers a release of claims agreement in a form satisfactory to us, he would be entitled to 12 months of his then
current annual salary as well as a bonus amount (as defined in his offer letter) and we would pay for (or provide cash payments equal to) the monthly medical insurance premium under COBRA for 12
months.
Mr. Breuil's Employment Offer Letter
On August 28, 2012, we entered into an employment offer letter with Mr. Breuil in connection with his appointment as our Chief Financial
Officer. His employment agreement provided for an annual base salary of $340,000, subject to adjustment from time to time, and eligibility for an annual bonus, health insurance and other employee
benefits as we established for our employees from time to time. In addition, we committed to grant him an option to purchase 1,400,000 shares of our common stock, with an exercise price equal to the
fair market value of our common stock on the date of grant. Mr. Breuil's employment offer was subject to his execution of our standard employee proprietary information and inventions assignment
agreement. Mr. Breuil's offer letter provides for "at will" employment.
If
we terminate Mr. Breuil's employment within one year of a liquidation event (as defined in his offer letter) without cause (as defined in his offer letter), or if after a liquidation event,
Mr. Breuil resigns for good reason (as defined in his offer letter) and he delivers a release of claims agreement in a form satisfactory to us, he would be entitled to 12 months of his then
current annual salary as well as a bonus amount (as defined in his offer letter) and we would pay for (or provide cash payments equal to) the monthly medical insurance premium under COBRA for 12
months.
Potential Payments upon Termination or Change in Control
The Named Executive Officers are eligible to receive certain severance payments and benefits in connection with a termination of employment under
various circumstances, including following a change in control of our company. The actual amounts that would be paid or distributed to an eligible Named Executive Officer as a result of a termination
of employment occurring in the future may be different than those presented below as many factors will affect the amount of any payments and benefits upon a termination of employment. For example,
some of the factors that could affect the amounts payable include the Named Executive Officer's base salary and the market price of our common stock. Although we have entered into a written agreement
to provide severance payments and benefits in connection with a termination of employment under particular circumstances, we, or an acquirer, may mutually agree with the Named Executive Officers to
provide payments and benefits on terms that vary from those currently contemplated. In addition to the amounts presented below, each Named Executive Officer would also be able to exercise any
previously-vested stock options
that he held. Finally, the Named Executive Officers are eligible to receive any benefits accrued under our broad-based benefit plans, such as accrued vacation pay, in accordance with those plans and
policies.
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Involuntary Termination of Employment in Connection with a Change in Control
In the event of an involuntary termination of employment without "cause" within one year of a liquidation event or if after a liquidation event the
Named Executive Officer resigns for "good reason", the Named Executive Officers are eligible to receive the following payments and benefits:
•
a lump-sum payment equal to his then-annual base salary for a period of 12
months from the date of termination;
•
health insurance premiums for himself and his eligible dependents under our
group health insurance plans as provided under COBRA until the earliest of (i) the close of the 12-month period commencing on the date of his termination of employment, (ii) the
expiration of his eligibility for continued coverage under COBRA or (iii) the date when he becomes eligible for substantially equivalent health insurance coverage in connection with new
employment or self-employment; and
•
our Chief Executive Officer and Chief Financial Officer each will receive a
bonus opportunity without regard to achievement of any corporate performance goals.
The
receipt of any payment termination-based payments or benefits is subject to the Named Executive Officer executing (and not subsequently revoking) a waiver and release of claims in favor of us.
In
addition, in the event of an involuntary termination of employment (a termination of employment by us without "cause" or by the Named Executive Officer for "good reason") within one year following
a liquidation event the
outstanding equity awards of our Chief Executive Officer and Chief Financial Officer will vest with respect to 100% of the shares.
Employee Benefit Plans
2002 Stock Option Plan
Our 2002 Stock Option Plan was adopted by our board of directors in February 2002 and approved by our stockholders in May 2002 and
terminated in 2012 when it was replaced by our 2012 Equity Incentive Plan. Accordingly, as of December 31, 2013, there are no shares of our common stock available for issuance under our 2002
Stock Option Plan. The 2002 Stock Option Plan continues to govern the stock options granted thereunder. As of December 31, 2013, options to purchase 137,030 of these shares had been exercised
and options to purchase 5,422,524 of these shares remained outstanding. The options outstanding as of December 31, 2013 had a weighted-average exercise price of $0.21 per share. Following the
completion of this offering, any outstanding options granted under the 2002 Stock Option Plan will remain outstanding, subject to the terms of our 2002 Stock Option Plan and stock option agreements,
until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2002 Stock Option Plan have terms similar to those described below with respect
to options to be granted under our 2014 Equity Incentive Plan.
StrataGent 2003 Stock Option Plan
In connection with our acquisition of StrataGent life Sciences, Inc. in September 2007, we assumed options granted under the
StrataGent, Inc. 2003 Stock Plan, or the StrataGent Plan, held by StrataGent employees who continued employment with us after the closing, and converted them into options to purchase shares of
our common stock. The StrataGent Plan was terminated on the closing of the acquisition, but the StrataGent Plan will continue to govern the terms of options we assumed in the acquisition. As of
December 31, 2013, options to purchase 46,053 shares of our common stock remained outstanding under the StrataGent Plan at a weighted-average exercise price of approximately $0.07 per share.
Our compensation committee currently administers the StrataGent Plan. 2012 Equity Incentive Plan.
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2012 Equity Incentive Plan
Our 2012 Equity Incentive Plan was adopted by our board of directors in November 2012 and approved by our stockholders in February 2013.
The 2012 Equity Incentive Plan provides for the grant of incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, nonstatutory stock
options, restricted stock units, and stock appreciation rights, as well as for the issuance of shares of restricted stock.
As
of December 31, 2013, we had reserved 12,536,557 shares of our common stock for issuance under our 2012 Equity Incentive Plan. As of December 31, 2013, options to purchase 40,750 of
these shares had been exercised (of which none have been repurchased and returned to the pool of shares reserved for issuance under the 2012 Equity Incentive Plan), options to purchase 9,985,789 of
these shares remained outstanding. In January 2014, our board of directors and stockholders approved an increase of 2,750,000 shares to the option pool, bringing the total number of shares of our
common stock reserved for issuance under the 2012 Equity Incentive Plan to 15,286,557. As of March 3, 2014, 542,018 of these shares remained available for future grant. The options outstanding
as of December 31, 2013 had a weighted-average exercise price of $0.22 per share. We will cease issuing awards under our 2012 Equity Incentive Plan upon the implementation of our 2014 Equity
Incentive Plan. Our 2014 Equity Incentive Plan will be effective on the date immediately prior to the date of this prospectus. As a result, we will not grant any additional options under the 2012
Equity Incentive Plan following that date, and the 2012 Equity Incentive Plan will terminate at that time. However, any outstanding options granted under the 2012 Equity Incentive Plan will remain
outstanding, subject to the terms of our 2012 Equity Incentive Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options
granted under the 2012 Equity Incentive Plan have terms similar to those described below with respect to options to be granted under our 2014 Equity Incentive Plan.
2014 Equity Incentive Plan
We will adopt a 2014 Equity Incentive Plan that will become effective on the date immediately prior to the date of this prospectus and will serve as
the successor to our 2012 Equity Incentive Plan. We reserved               shares of our common stock to be issued under our 2014 Equity Incentive Plan. In addition, shares
that were not issued
under our 2012 Equity Incentive Plan will be available for grant and issuance under our 2014 Equity Incentive Plan. The number of shares reserved for issuance under our 2014 Equity Incentive Plan will
increase automatically on               of each
of               through               by the number of shares equal
to          % of the total outstanding shares of our common stock as of
the immediately preceding December 31. However, our board of
directors or compensation committee may reduce the amount of the increase in any particular year. In addition, the following shares will again be available for grant and issuance under our 2014 Equity
Incentive Plan:
•
shares subject to options or stock appreciation rights granted under our
2014 Equity Incentive Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option or stock appreciation right;
•
shares subject to awards granted under our 2014 Equity Incentive Plan that
are subsequently forfeited or repurchased by us at the original issue price;
•
shares subject to awards granted under our 2014 Equity Incentive Plan that
otherwise terminate without shares being issued;
•
shares surrendered, cancelled, or exchanged for cash or a different award
(or combination thereof);
•
shares reserved but not issued or subject to outstanding grants under our
2012 Equity Incentive Plan on the date of this prospectus;
•
shares issuable upon the exercise of options or subject to other awards
under our 2012 Equity Incentive Plan or 2002 Stock Option Plan prior to the date of this prospectus that cease to be subject to such options or other awards by forfeiture or otherwise after the date
of this prospectus;
•
shares issued under our 2012 Equity Incentive Plan or 2002 Stock Option Plan
that are forfeited or repurchased by us after the date of this prospectus; and
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•
shares subject to awards under our 2012 Equity Incentive Plan or 2002 Stock
Option Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.
Our
2014 Equity Incentive Plan authorizes the award of stock options, restricted stock awards (RSAs), stock appreciation rights (SARs), restricted stock units (RSUs), performance awards and stock
bonuses. No person will be eligible to receive more than               shares in any calendar year under our 2014 Equity Incentive Plan other than a new employee of ours, who
will be eligible to
receive no more than               shares under the plan in the calendar year in which the employee commences employment.
Our
2014 Equity Incentive Plan will be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of
directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2014 Equity Incentive Plan, grant awards and make all other
determinations necessary or advisable for the administration of the plan.
Our
2014 Equity Incentive Plan will provide for the grant of awards to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors,
directors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair
market value of our common stock on the date of grant.
We
anticipate that in general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to
be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options
granted under our 2014 Equity Incentive Plan is ten years.
An
RSA is an offer by us to sell shares of our common stock subject to restrictions, which may vest based on time or achievement of performance conditions. The price (if any) of an RSA will be
determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the participant no longer provides services to
us and unvested shares will be forfeited to or repurchased by us.
Stock
appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the
date of exercise and the stated exercise price up to a maximum amount of cash or number of shares. SARs may vest based on time or achievement of performance conditions.
Restricted
stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure
to achieve certain performance conditions. If an RSU has not been forfeited, then on the date specified in the RSU agreement, we will deliver to the holder of the restricted stock unit whole shares of
our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash.
Our
2014 Equity Incentive Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1 million limitation
on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Internal Revenue Code. To help assure that the compensation attributable to
performance-based awards will so qualify, our compensation committee can structure such awards so that the stock or cash will be issued or paid pursuant to such award only following the achievement of
specified pre-established performance goals during a designated performance period. These awards are subject to forfeiture prior to settlement because of termination of employment or failure to
achieve the performance conditions.
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Stock
bonuses may be granted as additional compensation for service or performance, and therefore, not be issued in exchange for cash.
In
the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number of shares
reserved under our 2014 Equity Incentive Plan, the maximum number of shares that can be granted in a calendar year, and the number of shares and exercise price, if applicable, of all outstanding
awards under our 2014 Equity Incentive Plan.
Awards
granted under our 2014 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee.
Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative.
Options granted under our 2014 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee's service to us, for a period of 12 months in the
case of death or for a period of six months in the case of disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of
employment for cause.
Our
2014 Equity Incentive Plan provides that in the event of a specified corporate transaction, including without limitation a consolidation, merger, or similar transaction involving our company, the
sale, lease or other disposition of all or substantially all of the assets of our company or the consolidated assets of our company and our subsidiaries, or a sale or disposition of at least 50% of
the outstanding capital stock of our company, the administrator will determine how to treat each outstanding stock award. The administrator may:
•
arrange for the assumption, continuation or substitution of a stock award by
a successor corporation;
•
arrange for the assignment of any reacquisition or repurchase rights held by
us to a successor corporation;
•
accelerate the vesting of the stock award and provide for its termination
prior to the effective time of the corporate transaction;
•
arrange for the lapse, in whole or in part, of any reacquisition or
repurchase right held by us; or
•
cancel the stock award prior to the transaction in exchange for a cash
payment, which may be reduced by the exercise price payable in connection with the stock award.
The
administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. The administrator may take different actions with
respect to the vested and unvested portions of a stock award.
Our
2014 Equity Incentive Plan will terminate ten years from the date our board of directors approves the plan, unless it is terminated earlier by our board of directors. Our board of directors may
amend or terminate our 2014 Equity Incentive Plan at any time. If our board of directors amends our 2014 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless
required by applicable law.
2014 Employee Stock Purchase Plan
We will adopt a 2014 Employee Stock Purchase Plan in order to enable eligible employees to purchase shares of our common stock at a discount following
the date of this offering. Purchases will be accomplished through participation in discrete offering periods. Our 2014 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase
plan under Section 423 of the Code. We initially reserved               shares of our common stock for issuance under our 2014 Employee Stock Purchase Plan. The number of
shares reserved for
issuance under our 2014 Employee Stock Purchase Plan will increase automatically on the               day
of                             of each of the
first               calendar years following the first
offering date by the number of shares equal to the greater of          % of the total outstanding
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shares
of our common stock as of the immediately preceding December 31st (rounded to the nearest whole share) or the actual number of shares purchased under the 2014 Employee Stock Purchase
Plan in the immediately preceding fiscal year. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year. The aggregate number of shares
issued over the term of our 2014 Employee Stock Purchase Plan will not exceed               shares of our common stock.
Our
compensation committee will administer our 2014 Employee Stock Purchase Plan. Our employees generally are eligible to participate in our 2014 Employee Stock Purchase Plan; our compensation
committee may in its discretion elect to exclude employees who workless than 20 hours per week or less than five months in a calendar year. Employees who are 5% stockholders, or would become 5%
stockholders as a result of their participation in our 2014 Employee Stock Purchase Plan, are ineligible to participate in our 2014 Employee Stock Purchase Plan. We may impose additional restrictions
on eligibility. Under our 2014 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible
employees will be able to select a rate of payroll deduction between 1% and 15% of their eligible cash compensation. We will also have the right to amend or terminate our 2014 Employee Stock Purchase
Plan at any time. Our 2014 Employee Stock Purchase Plan will terminate on the tenth anniversary of the last day of the first purchase period, unless it is terminated earlier by our board of directors.
When
an initial purchase period commences, our employees who meet the eligibility requirements for participation in that purchase period will automatically be granted a nontransferable option to
purchase shares in that purchase period. For subsequent purchase periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic
in subsequent purchase periods. Each purchase period will run for no more than six months. An employee's participation automatically ends upon termination of employment for any reason.
Except
for the first purchase period, each purchase period will be for six months (commencing
each                             and           
                  ). The first purchase period will begin upon the effective date of
this offering and will end on                             2014.
No
participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar
year(s), that has a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no
participant will be permitted to purchase more than 2,500 shares during any one purchase period or such lesser amount determined by our compensation committee. The purchase price for shares of our
common stock purchased under our 2014 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering
period and (ii) the last trading day of each purchase period in the applicable offering period.
If
we experience a change in control transaction, any offering period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new
purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and our 2014 Employee Stock Purchase Plan will then terminate on the closing of the
proposed change in control.
401(k) Plan
We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(k) of the Code. Eligible employees may make
pre-tax contributions to the plan from their eligible earnings up to the limit under Section 402(g) of the Code. Participants who are 50 years of age or older may contribute additional
amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants to the plan and the income earned on those contributions are generally not taxable to
participants until withdrawn. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee's interest in his or her pre-tax deferrals is
100% vested
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when
contributed. Our board of directors approved a discretionary employer match equal to 15% of employee's elective deferrals up to a maximum of 6% of the participants' compensation.
Limitations on Liability and Indemnification Matters
Our restated certificate of incorporation will contain provisions that limit the liability of our directors for monetary damages to the fullest extent
permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability
for the following:
•
for any breach of their duty of loyalty to our company or our stockholders;
•
for any act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law;
•
unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the Delaware General Corporation Law; or
•
for any transaction from which they derived an improper personal benefit.
Our
restated bylaws will provide that we shall indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or
proceeding, by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. Our restated bylaws will provide that we may indemnify our employees or agents. Our restated bylaws will also provide that we must advance expenses incurred by or
on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to limited exceptions.
Prior
to the completion of this offering, we intend to obtain insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against
loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to
payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.
Prior
to completion of this offering, we also intend to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers against liabilities
that may arise by reason of their status or service. These indemnification agreements may also require us to advance all expenses incurred by the directors and executive officers in investigating or
defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
At
present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as
a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened
litigation that may result in claims for indemnification.
The
underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act of 1933, as
amended, or the Securities Act, or otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have
been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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RELATED PARTY TRANSACTIONS
In addition to the executive officer and director compensation arrangements discussed above under "Executive Compensation," below we describe
transactions since October 1, 2010 to which we have been a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our directors,
executive officers or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or
indirect material interest or such other persons as may be required to be disclosed pursuant to Item 404 of Regulation S-K, which we refer collectively refer to as related parties.
Indebtedness
In June and November 2008, we entered into certain note and warrant purchase agreements pursuant to which we issued to certain investors,
including Essex Woodlands, our largest stockholder and an entity affiliated with Ronald Eastman, a member of our board of directors, secured convertible notes. Essex Woodlands purchased convertible
notes with an aggregate principal amount of $20.0 million, $10.0 million of which we repaid in August 2012. The amounts outstanding under the notes are collateralized by a
security interest in all our assets, subordinated to the interests of our senior debt. In September 2012, we amended and restated these convertible notes and delivered to Essex Woodlands a new
amended and restated convertible note with a remaining principal amount of $10.0 million, which matures on July 1, 2017. Interest accrues on the convertible note at a rate of 10% per
annum, and pursuant to an intercreditor agreement, we are not permitted to pay any interest on the convertible note until maturity.
In
May 2009, we entered into a note purchase agreement pursuant to which we issued to Essex Woodlands a subordinated secured promissory note with an aggregate principal amount of
$13.0 million. The amount outstanding under the note is collateralized by a security interest in all our assets, subordinated to the interests of our senior debt. In September 2012, we
amended and restated this note and delivered to Essex Woodlands a new amended and restated subordinated note with the same aggregate principal amount, which matures on July 1, 2017. The
aggregate principal amounts and accrued interest of $18.5 million and $15.7 million held by Essex Woodlands under their convertible notes and the subordinated note, respectively, will be
converted into an aggregate of                      shares of our common stock immediately prior to this offering, and the notes will be
terminated, as described in "—Recapitalization."
Stock Repurchases
In September 2007, we entered into two repurchase agreements pursuant to which we agreed to repurchase 3,270,469 shares of our common stock at
a repurchase price of $0.9173 per share from a trust affiliated with Gary Cleary, a member of our board of directors, or the Cleary Trust, and from Adrian Faasse, one of our founders and former Chief
Executive Officer. Pursuant to the terms of these repurchase agreements, we had an outstanding obligation upon the occurrence of certain specified events to repurchase 1,333,939 and 2,180,313 shares
of common stock from the Cleary Trust and Mr. Faasse, respectively. These repurchase obligations will be satisfied in full in connection with the recapitalization described in
"—Recapitalization."
Recapitalization
In December 2013, we entered into an amendment and conversion agreement with Essex Woodlands pursuant to which we and Essex Woodlands
(i) amended the convertible notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of our common stock immediately prior
to the closing of this offering or into 20,569,231 shares of our Series C preferred stock immediately prior to the first closing of a qualified equity financing that occurs prior to the closing
of this offering; (ii) amended the terms of the subordinated note to provide that it will automatically convert either into 34,210,182 shares of our common stock immediately prior to the
closing of this offering or into 34,210,182 shares of a new series of our preferred stock (with identical rights, preferences and privileges
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as
our Series C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs
prior to the closing of this offering; and (iii) requires Essex Woodlands to effect the automatic conversion of all outstanding shares of our preferred stock in connection with the completion
of this offering. In connection with the completion of this offering, we will issue to Essex Woodlands a total of 54,409,154 shares of common stock pursuant to the terms of this agreement.
Simultaneously,
we also entered into a repurchase agreement pursuant to which we agreed to repurchase 5,019,755 and 5,866,129 shares of our common stock for an aggregate repurchase price of
$2.2 million and $3.0 million from the Cleary Trust and Mr. Faasse, respectively. These repurchases will occur immediately prior to the earlier of the closing of this offering and
the first closing of a qualified equity financing, and these repurchases will satisfy in full all of our remaining obligations under the repurchase agreements described in "—Stock
Repurchases."
Warrant Amendments
In November 2012, we amended outstanding warrants to purchase 11,787,394 shares of our common stock from various dates beginning in
June 2013 through November 2013 to extend the expiration date of the warrants to August 2017.
Employment Agreements
We have entered into employment arrangements with our executive officers, as more fully described in "Executive Compensation."
Equity Grants to Executive Officers and Directors
We have granted stock options to our executive officers and directors, as more fully described in the section entitled "Executive Compensation."
Loans to Executive Officers
In June 2013, Parminder Singh, our Chief Technology Officer and Vice President, Research and Development, delivered to us a full recourse
promissory note in the aggregate principal amount of $100,000 with an annual interest rate of 2.25%, compounded semi-annually. The note had a maturity date of December 2015, with respect to
half of the principal balance and any accrued and unpaid interest on such date, and June 2018, with respect to the remaining principal and any accrued and unpaid interest. The balance of the
note was fully repaid in February 2014.
In
August 2004, Gary Cleary delivered to us a note in the aggregate principal amount of $700,000 with an annual interest rate of 2.25%, compounded monthly. The balance of the note was fully
repaid in September 2012.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers, as described in "Executive
Compensation—Limitation on Liability and Indemnification Matters."
Review, Approval or Ratification of Transactions with Related Parties
The charter of our Audit Committee requires that any transaction with a related party that must be reported under applicable rules of the SEC, other
than compensation related matters, must be reviewed and approved or ratified by our Audit Committee. We intend to adopt a written related person transactions policy that our executive officers,
directors, nominees for election as a director, beneficial owners of more than 5% of our common stock, and any members of the immediate family of and any entity affiliated with any of the foregoing
persons, are not permitted to enter into a material related person transaction with us without the
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review
and approval of our audit committee, or a committee composed solely of independent directors in the event it is inappropriate for our audit committee to review such transaction due to a
conflict of interest. We expect the policy to provide that any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of
more than 5% of our common stock or with any of their immediate family members or affiliates in which the amount involved exceeds $120,000 will be presented to our audit committee for review,
consideration and approval. In approving or rejecting any such proposal, we expect that our audit committee will consider the relevant facts and circumstances available and deemed relevant to the
audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar
circumstances and the extent of the related person's interest in the transaction.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 31, 2013, and as
adjusted to reflect the sale of common stock offered by us in this offering, for:
•
each stockholder known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock;
•
each of our directors;
•
each of our Named Executive Officers; and
•
all of our directors and executive officers as a group.
We
have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and
entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Shares
beneficially owned prior to the offering is based on 58,581,294 shares of common stock outstanding at December 31, 2013, assuming conversion of all outstanding shares of preferred stock
into an aggregate of 36,034,900 shares of our common stock. Shares beneficially owned after the offering also assumes (i)                shares of common stock that will
be issued by us in
this offering, (ii) 54,779,413 shares of common stock issued immediately prior to the closing of this offering in connection with the recapitalization, and (iii) 10,885,884 shares of
common stock to be repurchased from our founders immediately prior to the closing of this offering in connection with the recapitalization. In computing the number of shares of common stock
beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently
exercisable or that will become exercisable within 60 days of December 31, 2013. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership
of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Corium International, Inc., 235 Constitution Drive, Menlo
Park, California 94025.
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Shares Beneficially Owned
Prior to the Offering
Shares Beneficially Owned
After the Offering
(14)
Name of Beneficial Owner
Number
Percent
Number
Percent
5% or Greater Stockholders
Essex Woodlands
(1)
39,622,954
55.92
%
Adrian Faasse, Jr.
(2)
8,799,194
15.02
Gary W. Cleary and Nobuko Saito Cleary, Trustees of the Cleary-Saito Family Trust U/D/T dated September 4, 1996
7,952,820
13.58
Barr Laboratories
5,839,883
9.97
Directors and Named Executive Officers
Peter D. Staple
(3)
3,813,075
6.11
Robert S. Breuil
(4)
637,500
1.08
Parminder Singh
(5)
834,166
1.40
Bhaskar Chaudhuri
(6)
273,489
*
Gary W. Cleary
(7)
7,952,820
13.58
Ronald Eastman
(8)
39,622,954
55.92
Phyllis Gardner
(9)
345,460
*
David Greenwood
(10)
434,422
*
John Kozarich
(11)
345,460
*
Robert W. Thomas
(12)
359,650
*
Daniel G. Welch
(13)
345,460
*
All executive officers and directors as a group (11 persons)
(14)
54,964,456
70.24
*
Less
than 1%.
(1)
Consists
of 27,344,992 shares held by Essex Woodlands Health Ventures Fund VII, L.P. (EWHV VII) and
(ii) 12,277,962 shares issuable subject to warrants which are exercisable within 60 days of December 31, 2013 held by EWHV VII. Mr. Eastman, one of our directors, is
a managing partner of Essex Woodlands Health Ventures L.P. which is the sole general partner of EWHV VII, and Mr. Eastman may be deemed to share voting and investment power over these
shares. Dr. Gardner, one of our directors is an adjunct partner of Essex Woodlands Health Ventures and does not beneficially own any of these shares. Shares beneficially owned after the
offering include the issuance of 54,409,154 shares of common stock to EWHV VII in connection with the recapitalization.
(2)
Shares
beneficially owned after the offering reflects the repurchase of 5,886,129 shares of common stock from Adrian Faasse, Jr., in
connection with the recapitalization.
(3)
Consists
of shares subject to options held by Mr. Staple that are exercisable within 60 days of December 31, 2013.
(4)
Consists
of shares subject to options held by Mr. Breuil that are exercisable within 60 days of December 31, 2013.
(5)
Consists
of shares subject to options held by Dr. Singh that are exercisable within 60 days of December 31, 2013.
(6)
Consists
of shares subject to options held by Dr. Chaudhuri that are exercisable within 60 days of December 31, 2013.
(7)
Consists
of shares held by Gary W. Cleary and Nobuko Saito Cleary, Trustees of the Cleary-Saito Family Trust U/D/T dated
September 4, 1996 of which Dr. Cleary may be deemed to have investment and voting power. Shares beneficially owned after the offering reflects the repurchase of 5,019,755 shares of
common stock by us in connection with the capitalization.
(8)
See
footnote 1.
(9)
Consists
of shares subject to options held by Dr. Gardner that are exercisable within 60 days of December 31, 2013.
(10)
Consists
of shares subject to options held by Mr. Greenwood that are exercisable within 60 days of December 31, 2013.
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(11)
Consists
of shares subject to options held by Dr. Kozarich that are exercisable within 60 days of December 31, 2013.
(12)
Consists
of shares subject to options held by Mr. Thomas that are exercisable within 60 days of December 31, 2013.
(13)
Consists
of shares subject to options held by Mr. Welch that are exercisable within 60 days of December 31, 2013.
(14)
Consists
of (i) 35,297,812 shares outstanding; (ii) 12,277,962 shares issuable subject to warrants which are exercisable within 60
days of December 31, 2013 and (iii) 7,388,682 shares subject to options that are exercisable within 60 days of December 31, 2013.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of our initial public offering, our authorized capital stock will consist of               shares of common stock, $0.001 par
value per share, and               shares of undesignated preferred stock, $0.001 par value per share. A description of the material terms and provisions of our restated
certificate of incorporation
and restated bylaws that will be in effect at the closing of our initial public offering and affecting the rights of holders of our capital stock is set forth below. The description is intended as a
summary, and is qualified in its entirety by reference to the form of our restated certificate of incorporation and the form of our restated bylaws to be adopted in connection with our initial public
offering that will be filed with the registration statement relating to this prospectus.
As
of December 31, 2013, and after giving effect to the automatic conversion of all of our outstanding preferred stock into common stock and the automatic conversion of certain warrants into
shares of our common stock in connection with our initial public offering and the recapitalization, there were
outstanding                        shares of our common stock held by approximately 52
stockholders;
Common Stock
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are
entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only then at the times and in the amounts that our board of
directors may determine.
Voting Rights
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Our
restated certificate of incorporation eliminates the right of stockholders to cumulate votes for the election of directors. Accordingly, holders of a majority of the shares of our common stock will be
able to elect all of our directors. Our restated certificate of incorporation to be in effect upon the closing of this offering establishes a classified board of directors, to be divided into three
classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective
three-year terms.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the
holders of our common stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares
of preferred stock.
Preferred Stock
In connection with this offering, each currently outstanding share of preferred stock will convert into common stock.
Upon
the closing of this offering, we will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions. Our board of
directors also can increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders.
Our board of directors may authorize the
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issuance
of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our
company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of December 31, 2013, we had outstanding the following warrants to purchase shares of our capital stock:
Type of Capital Stock
Total Number
of Shares
Subject to
Warrants
Weighted Average
Exercise Price
Per Share
Expiration Dates
Common stock
13,075,643
$
0.19
September 2018
(1)
Series C preferred stock
1,707,287
(2)
0.90
October 2018-November 2021
(3)
(1)
12,993,643
of these shares subject to warrants with a weighted average exercise price of $0.19 are subject to automatic net exercise
connection with this offering.
(2)
Convert
automatically into warrants to purchase an aggregate of 1,707,287 shares of our common stock upon the conversion of our outstanding
preferred stock into common stock in connection with this offering. The holders of 1,024,746 of the shares issuable upon exercise of these warrants are entitled to piggyback and Form S-3
registration rights with respect to such shares as described in "—Registration Rights."
(3)
163,522
of these shares subject to warrants with an exercise price of $0.7384 are subject to automatic net exercise connection with this
offering.
Options
As of December 31, 2013, 5,422,524, 46,053 and 9,985,789 shares of our common stock were issuable upon exercise of outstanding options under
our 2002 Stock Option Plan, the StrataGent Stock Plan and our 2012 Equity Incentive Plan, respectively.
Registration Rights
According to the terms of our amended and restated investors' rights agreement entered into in September 2007, certain investors are entitled to
demand, piggyback and Form S-3 registration rights. The stockholders who are a party to the investors' rights agreement will hold an aggregate
of                        shares, or          %, of
our common stock upon the closing of this offering and the conversion of all existing series of our convertible preferred stock into shares of our common stock. Such stockholders have waived their
registration rights with respect to this offering. In addition, holders of outstanding warrants to purchase 1,024,746 shares of our Series C preferred stock are entitled to piggyback and
Form S-3 registration rights under that investors' rights agreement.
Demand Registration Rights.
The holders of at least 40% of the shares having demand registration rights have the right to make up to two demands that we
file a registration statement to register all or a portion of their shares. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if our
board of directors determines that the filing would be detrimental to us.
Piggyback Registration Rights.
If we register any securities for public sale, holders of registration rights are entitled to written notice of the registration and
will have the right to include their shares in the registration statement. The underwriters of any offering will have the right to limit the number of shares having
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registration
rights to be included in the registration statement, but not below 30% of the total number of shares included in the registration statement, unless such offering is our initial public
offering, in which case any and all shares held by selling stockholders may be excluded from the offering.
Form S-3 Registration Rights.
If we are eligible to file a registration statement on Form S-3, the holders of the shares with registration
rights have the right to make up to two demands that we file a registration statement on Form S-3 during a twelve month period, so long as the aggregate value of the securities to be
sold under the registration statement on Form S-3 is at least $1,000,000. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if our board
of directors determines that the filing would be detrimental to us.
Expenses of Registration.
Generally, we are required to bear all registration and selling expenses incurred in connection with the demand, piggyback and
Form S-3 registrations described above, other than underwriting discounts and commissions, stock transfer taxes and fees of counsel for any holder other than the fees of a single special
counsel for the holders of registration rights not to exceed $50,000 or $25,000 in the case of a registration on Form S-3.
Expiration of Registration Rights.
The demand, piggyback and Form S-3 registration rights discussed above will terminate five years following the closing of
this offering. In addition, the registration rights discussed above will terminate with respect to any stockholder entitled to these registration rights on the date when such stockholder is able to
sell all of its registrable common stock in a single 90-day period under Rule 144 of the Securities Act.
Anti-Takeover Provisions
The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents
some Delaware corporations, including us, from engaging, under some circumstances, in a business combination, which includes a merger or sale of at least 10% of the corporation's assets with any
interested stockholder, meaning a stockholder who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more
of the corporation's outstanding voting stock, unless:
•
the transaction is approved by the board of directors prior to the time that
the interested stockholder became an interested stockholder;
•
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
•
at or subsequent to such time that the stockholder became an interested
stockholder, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by at least two-thirds of the outstanding voting stock not
owned by the interested stockholder.
A
Delaware corporation may "opt out" of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws
resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. We do not plan to "opt out" of these provisions. The statute could prohibit or delay mergers
or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
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Restated Certificate of Incorporation and Restated Bylaw Provisions
Our restated certificate of incorporation and our restated bylaws to be in effect upon the closing of this offering will include a number of
provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control, including the following:
•
Board of Directors Vacancies.
Our
restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships. In addition, the number of directors constituting our board of
directors will be set only by resolution adopted by a majority vote of our entire board of directors. These provisions prevent a stockholder from increasing the size of our board of directors and
gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors, but promotes
continuity of management.
•
Classified Board.
Our restated
certificate of incorporation and restated bylaws will provide that our board of directors is classified into three classes of directors. The existence of a classified board could delay a successful
tender offeror from obtaining majority control of our board of directors, and the prospect of that delay might deter a potential offeror.
•
Stockholder Action; Special Meeting of
Stockholders.
Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but
may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our restated bylaws or remove
directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Our restated bylaws will further provide that special meetings of our stockholders may be called
only by a majority of our board of directors, the chairman of our board of directors, our lead independent director, our chief executive officer or our president, thus prohibiting a stockholder from
calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any
action, including the removal of directors.
•
Advance Notice Requirements for Stockholder Proposals and Director
Nominations.
Our restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual
meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders. Our restated bylaws also will specify certain requirements regarding the form and
content of a stockholder's notice. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual
meeting of stockholders. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or
otherwise attempting to obtain control of our company.
•
No Cumulative Voting.
The Delaware
General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation's certificate of incorporation provides otherwise.
Our restated certificate of incorporation and restated bylaws will not provide for cumulative voting.
•
Issuance of Undesignated Preferred
Stock.
Our board of directors will have the authority, without further action by the stockholders, to issue up to               shares
of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissued shares of
preferred stock enables our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
•
Super Majority Vote to Amend Certificate of Incorporation and
Bylaws.
Any amendment of the above provisions in our restated certificate of incorporation is expected to require approval by holders of
at least two-thirds of our outstanding common stock. The approval of a majority of the shares entitled to vote shall be required to amend any other provisions of our restated certificate of
incorporation or restated bylaws.
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Choice of Forum
Our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any
derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law, our restated certificate of incorporation or our restated bylaws; any action to interpret, apply, enforce or determine the validity of our restated certificate of incorporation or our restated
bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. Although we have included a choice of forum clause in our restated certificate of incorporation,
it is possible that a court could rule that such provision is inapplicable or unenforceable.
Listing
We intend to apply to list our common stock on the NASDAQ Global Market under the symbol "CORI."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Before our initial public offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares
of our common stock, including shares issued upon the exercise of outstanding options, in the public market after our initial public offering, or the possibility of these sales occurring, could cause
the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.
After
our initial public offering, we will have outstanding               shares of our common stock, based on the number of shares outstanding as of December 31, 2013. This
includes
               shares that we are selling in this offering, which shares may be resold in the public market immediately, and assumes no additional exercise of outstanding
options other than as
described elsewhere in this prospectus.
The
remaining                             shares of common stock that are not sold in this offering will be
"restricted securities," as that term is defined in Rule 144 under the Securities Act. These
restricted securities are eligible for public sale only if
they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below.
In
addition, all or substantially all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to
specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements, subject to the provisions of
Rule 144 or Rule 701,               shares will be available for sale in the public market as follows:
•
Beginning on the date of this prospectus, the               shares sold in
this offering will be immediately available for sale in the public market;
•
Beginning 181 days after the date of this prospectus,               
additional shares will become eligible for sale in the public market, of which               shares will be held by affiliates and subject to the volume and other restrictions
of Rule 144, as
described below; and
•
The remainder of the shares will be eligible for sale in the public market
from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least
90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned
the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of
sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares
proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of
the requirements of Rule 144.
In
general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon the expiration of the lock-up agreements
described below, within any three-month period
beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
•
1% of the number of shares of common stock then outstanding, which will
equal approximately               shares immediately after our initial public offering, or
•
the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
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Sales
under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about us.
Rule 701
In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with
a compensatory stock or option plan or other written agreement in a transaction before the effective date of our initial public offering that was completed in reliance on Rule 701 and complied
with the requirements of Rule 701 will, subject to the lock-up restrictions described below, be eligible to resell such shares 90 days after the date of this prospectus in reliance on
Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.
Lock-Up Agreements and Market Stand-Off Provisions
All of our directors and officers and all or substantially all of our security holders are subject to lock-up agreements or market standoff provisions
that generally prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options
to acquire shares of our common stock or any security or instrument related to our common stock, or entering into any swap, hedge or other arrangement that transfers any of the economic consequences
of ownership of our common stock, for a period of 180 days following the date of this prospectus without the prior written consent of Jefferies LLC. See "Underwriting—No
Sales of Similar Securities" for a more complete description of the lock-up agreements with the underwriters.
Registration Rights
Upon the closing of our initial public offering, certain holders of                        shares of our common
stock will be entitled to rights with respect
to the registration of the sale of these shares under the Securities Act. Registration of the sale of these shares under the Securities Act would result in these shares becoming fully tradable without
restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock—Registration
Rights" for additional information.
Registration Statements
We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of common stock subject to
options outstanding, as well as reserved for future issuance, under our stock plans. We expect to file this registration statement as soon as practicable after our initial public offering. However,
none of the shares registered on Form S-8 will be eligible for resale until the expiration of the lock-up agreements to which they are subject.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock
acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes and does not deal with state, local or non-U.S. tax
consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address U.S. federal tax consequences other than income taxes. Special rules different
from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code such as financial institutions, insurance companies, tax-exempt organizations,
broker-dealers and traders in securities, U.S. expatriates, "controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal
income tax, persons that hold our common stock as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or integrated investment or other risk reduction strategy, partnerships
and other pass-through entities, and investors in such pass-through entities or entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their places of
organization or formation). Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed
below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with
such statements and conclusions. This discussion assumes that the Non-U.S. Holder holds our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property
held for investment).
The
following discussion is for general information only and is not tax advice. Persons considering the purchase of our common stock pursuant to this offering should consult their own tax advisors
concerning the U.S. federal income tax consequences of acquiring, owning and disposing of our common stock in light of their particular situations as well as any consequences arising under the laws of
any other taxing jurisdiction, including any state, local or non-U.S. tax consequences or any U.S. federal non-income tax consequences.
For
the purposes of this discussion, a "Non-U.S. Holder" is, for U.S. federal income tax purposes, a beneficial owner of common stock that is not a U.S. Holder. A "U.S. Holder" means a beneficial
owner of our common stock that is for U.S. federal income tax purposes (a) an individual who is a citizen or resident of the United States, (b) a corporation or other entity treated as a
corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Also, partnerships, or other
entities that are treated as partnerships for U.S. federal income tax purposes (regardless of their place of organization or formation) and entities that are treated as disregarded entities for U.S.
federal income tax purposes (regardless of their place of organization or formation) are not addressed by this discussion and are, therefore, not considered to be Non-U.S. Holders for the purposes of
this discussion.
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Distributions
Subject to the discussion below, distributions, if any, made on our common stock to a Non-U.S. Holder of our common stock to the extent made out of
our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) generally will constitute dividends for U.S. tax purposes and will be subject to withholding
tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to
provide us with a properly executed IRS Form W-8BEN, or other appropriate form, certifying the Non-U.S. Holder's entitlement to benefits under that treaty. In the case of a Non-U.S. Holder that
is an entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to
the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder's behalf, the holder will be required to
provide appropriate documentation to such agent. The holder's agent will
then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an
income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a
refund with the IRS.
We
generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States
(and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States) if a properly executed IRS Form W-8ECI,
stating that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to such agent). In general, such effectively connected dividends
will be subject to U.S. federal income tax, on a net income basis at the regular graduated rates, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively
connected dividends may also be subject to an additional "branch profits tax," which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) on the corporate Non-U.S. Holder's effectively connected earnings and profits, subject to certain adjustments.
To
the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce your adjusted basis in our common stock as a non-taxable return
of capital, but not below zero, and then any excess will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next
section.
Gain on Disposition of Our Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally will not be subject to U.S. federal
income tax with respect to gain realized on a sale or other disposition of our common stock unless (a) the gain is effectively connected with a trade or business of such holder in the United
States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such holder maintains in the United States), (b) the Non-U.S. Holder is a
nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a
"United States real property holding corporation" within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder's
holding period.
If
you are a Non-U.S. Holder described in (a) above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, unless a specific
treaty exemption applies, and corporate Non-U.S. Holders described in (a) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. If you are an individual Non-U.S. Holder described in (b) above, you will be required to pay a flat 30% tax on the gain
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derived
from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S.
federal income tax returns with respect to such losses. With respect to (c) above, in general, we would be a United States real property holding corporation if interests in U.S. real estate
comprised (by fair market value) at least half of our assets. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation, however, there can be no
assurance that we will not become a U.S. real property holding corporation in the future. Even if we are treated as a U.S. real property holding corporation, gain realized by a Non-U.S. Holder on a
disposition of our common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly and constructively, no more than five percent of
our common stock at all times within the shorter of (i) the five-year period preceding the disposition or (ii) the holder's holding period and (2) our common stock is regularly
traded on an established securities market. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.
Information Reporting Requirements and Backup Withholding
Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock including the
amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to
tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.
Dividends
paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a
properly executed IRS Form W-8BEN or otherwise establishes an exemption and, provided that, the applicable withholding agent does not have actual knowledge or reason to know the holder is a
United States person.
Under
current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or
through a U.S. office of any broker, U.S. or non-U.S., except that information reporting and such requirements may be avoided if the holder provides a properly executed IRS Form W-8BEN or
otherwise meets documentary evidence requirements for establishing Non-U.S. Holder status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding
requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker.
Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a
U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.
If
backup withholding is applied to you, you should consult with your own tax advisor to determine if you are able to obtain a tax benefit or credit with respect to such backup withholding.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax
Compliance Act, or "FATCA") on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends
on, or gross proceeds from the sale or other disposition of, our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless
(1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any "substantial
United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial
foreign entity otherwise qualifies for an exemption from
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these
rules. The 30% federal withholding tax describe in this paragraph cannot be reduced under an income tax treaty with the United States or by providing a form W-BEN or similar
documentation. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department
of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in
the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and IRS guidance, withholding under FATCA generally will apply to payments of dividends on our common stock made on or after July 1, 2014 and to
payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2017.
Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
THE
PRECEDING DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER
ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS SUCH AS ESTATE AND GIFT TAX.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement,
dated                             , 2014, between us and Jefferies LLC and
Leerink Partners LLC, as the representatives of the underwriters named below and the joint book-running managers of this offering, we have agreed to sell to the underwriters, and each of the
underwriters has agreed, severally and not jointly, to purchase from us, the respective number of shares of common stock shown opposite its name below:
Underwriter
Number of Shares
Jefferies LLC
Leerink Partners LLC
Needham & Company, LLC
FBR Capital Markets & Co.
Total
The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the
underwriters of officers' certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the
shares of common stock if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or
the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.
The
underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the common stock as permitted by applicable laws and regulations. However,
the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be
given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when
you sell will be favorable.
The
underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriters reserve the right to withdraw,
cancel or modify offers to the public and to reject orders in whole or in part. In addition, the underwriters have advised us that they do not intend to confirm sales to any account over which they
exercise discretionary authority.
Commission and Expenses
The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on
the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $               per share of
common stock. The
underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $               per share of common stock to certain brokers and
dealers. After the offering,
the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus.
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The
following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this
offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
Per Share
Total
Without
Option to
Purchase
Additional
Shares
With
Option to
Purchase
Additional
Shares
Without
Option to
Purchase
Additional
Shares
With
Option to
Purchase
Additional
Shares
Public offering price
$
$
$
$
Underwriting discounts and commissions paid by us
$
$
$
$
Proceeds to us, before expenses
$
$
$
$
We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be
approximately $               .
Healthios
Capital Markets, Inc., or Healthios, a FINRA member, is acting as our financial advisor in connection with the offering. We expect to pay Healthios, upon the successful completion of
this offering, a fee of $               for its services. Healthios is not acting as an underwriter and will not sell or offer to sell any securities and will not identify,
solicit or engage directly
with potential investors. In addition, Healthios will not underwrite or purchase any of the offered securities or otherwise participate in any such undertaking.
Determination of Offering Price
Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our common stock
will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market
valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
We
offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to the offering or that an active
trading market for the common stock will develop and continue after the offering.
Listing
We intend to apply to have our common stock approved for listing on the NASDAQ Global Market under the trading symbol "CORI."
Option to Purchase Additional Shares
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of                             shares from us at the public offering
price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the
underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional shares proportionate to that underwriter's initial
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purchase
commitment as indicated in the table above. This option may be exercised only if the underwriters sell more shares than the total number set forth on the cover page of this prospectus.
No Sales of Similar Securities
We, our officers, directors and holders of all or substantially all our outstanding capital stock have agreed, subject to specified exceptions, not to
directly or indirectly:
•
sell, offer, contract or grant any option to sell (including any short
sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-l(h) under the Securities Exchange Act of 1934, as amended, or
•
otherwise dispose of any shares of common stock, options or warrants to
acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock currently or hereafter owned either of record or beneficially,
or
•
publicly announce an intention to do any of the foregoing for a period of
180 days after the date of this prospectus without the prior written consent of Jefferies LLC.
This
restriction terminates after the close of trading of the common stock on and including the 180
th
day after the date of this prospectus.
Jefferies LLC
may, in its sole discretion and at any time or from time to time before the termination of the 180-day period release all or any portion of the securities subject to lock-up
agreements. There are no existing agreements between the underwriters and any of our shareholders who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration
of the lock-up period.
Stabilization
The underwriters have advised us that they, pursuant to Regulation M under the Securities Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These
activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales
positions may involve either "covered" short sales or "naked" short sales.
"Covered"
short sales are sales made in an amount not greater than the underwriters' option to purchase additional shares of our common stock in this offering. The underwriters may close out any
covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of
shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they
may purchase shares through the option to purchase additional shares.
"Naked"
short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market
after pricing that could adversely affect investors who purchase in this offering.
A
stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to
other purchase transactions, the underwriter's purchases
to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common
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stock.
As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the
selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering
transaction and therefore have not been effectively placed by such syndicate member.
Neither
we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common
stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.
The
underwriters may also engage in passive market making transactions in our common stock on the NASDAQ Global Market in accordance with Rule 103 of Regulation M during a period before
the commencement of offers or sales of shares of our common stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in
excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, that bid must then be lowered when specified purchase limits
are exceeded.
Electronic Distribution
A prospectus in electronic format may be made available by e-mail or through online services maintained by one or more of the underwriters or their
affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares
of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the
prospectus in electronic format, the information on the underwriters' web sites and any information contained in any other web site maintained by any of the underwriters is not part of this
prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.
Other Activities and Relationships
The underwriter and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities
trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriter and
certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for
which they received or will receive customary fees and expenses.
In
the ordinary course of their various business activities, the underwriter and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may
involve securities and/or instruments issued by us and our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit
exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either
the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short
positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment
recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that
they acquire, long and/or short positions in such securities and instruments.
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Disclaimers About Non-U.S. Jurisdictions
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), an
offer to the public of any shares which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State, except that the shares may be offered to the
public in that Relevant Member State at any time under the following exemptions under the Prospectus Directive, if it has been implemented in that Relevant Member State:
(a)
to
legal entities which are "qualified investors" as defined in the Prospectus Directive;
(b)
to
fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons
(other than "qualified investors" as defined in the Prospectus Directive) as permitted under the Prospectus Directive; or
(c)
in
any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided
that no such offer of shares shall result in a requirement for, the publication by the Company or either of the Joint Sponsors of a Prospectus pursuant to Article 3 of the Prospectus
Directive, or supplementing a Prospectus pursuant to Article 16 of the Prospectus Directive, and each person who initially acquires shares or to whom any offer is made will be deemed to have
represented, warranted to and agreed with the Joint Sponsors and the Company that it is a "qualified investor" within the meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive.
For
the purposes of this provision, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the
extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning
of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005, as amended (the "Order") and/or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully
be communicated (each such person being referred to as a "relevant person").
This
prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom.
Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon for us by Fenwick & West LLP, Mountain View, California.
Latham & Watkins LLP, Costa Mesa, California is acting as counsel to the underwriters.
EXPERTS
The financial statements as of September 30, 2012 and 2013, and for the years then ended, included in this prospectus, have been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, which expresses an unqualified opinion on the financial statements
and includes an explanatory paragraph referring to substantial doubt about our ability to continue as a going concern. Such financial statements have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered
hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For
further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding
the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such
contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon closing of our initial public offering, we will be required
to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. A copy of the registration statement and the exhibits filed therewith may be inspected
without charge at the public reference room maintained by the SEC, located at 100 F Street, NE, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained
from that office. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
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CORIUM INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
As of and for the years ended September 30, 2012 and 2013
Page
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets
F-3
Statements of Operations and Comprehensive Loss
F-4
Statements of Changes in Convertible Preferred Stock, Redeemable Common Stock
and Stockholders' Deficit
F-5
Statements of Cash Flows
F-6
Notes to Financial Statements
F-7
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Corium International, Inc.:
We
have audited the accompanying balance sheets of Corium International, Inc. (the "Company") as of September 30, 2013 and 2012, and the related statements of operations and
comprehensive loss, changes in convertible preferred stock, redeemable common stock and stockholders' deficit, and cash flows for each of the two years in the period ended September 30, 2013.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, such financial statements present fairly, in all material respects, the financial position of Corium International, Inc. as of September 30, 2013 and 2012, and the
results of its operations and its cash flows for each of the two years in the period ended September 30, 2013, in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring
losses and their need to obtain additional capital raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also discussed in
Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
Deloitte & Touche LLP
Grand Rapids, Michigan
March 3, 2014
F-2
Table of Contents
CORIUM INTERNATIONAL, INC.
Balance Sheets
(In thousands, except share and per share data)
Pro Forma
Stockholders'
Equity
as of
September 30,
2013
As of September 30,
2012
2013
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
12,245
$
13,581
Accounts receivable, net
2,800
3,129
Unbilled accounts receivable
2,167
1,495
Inventories, net
4,369
4,508
Prepaid expenses and other current assets
901
1,038
Total current assets
22,482
23,751
Property and equipment, net
7,024
12,622
Debt financing costs, net
1,119
902
Intangible assets, net
6,577
6,647
Notes receivable — related parties
—
100
TOTAL ASSETS
$
37,202
$
44,022
LIABILITIES, CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
3,298
$
2,748
Accrued expenses and other current liabilities
3,441
3,374
Bank lines of credit
1,572
3,873
Long-term debt, current portion
557
457
Capital lease obligations, current portion
599
1,029
Preferred stock warrant liability
546
560
Recall liability, current portion
500
1,004
Deferred contract revenues, current portion
867
2,112
Total current liabilities
11,380
15,157
Long-term interest payable
9,940
11,590
Long-term debt, net of current portion
29,201
36,956
Convertible notes
10,000
9,399
Subordinated note
13,000
13,000
Subordinated note embedded derivative liability
—
7,367
Capital lease obligations, net of current portion
430
1,652
Recall liability, net of current portion
4,500
3,828
Deferred contract revenues, net of current portion
4,612
3,688
Total liabilities
83,063
102,637
Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma (unaudited)
57,261
57,261
Redeemable common stock, par value of $.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro
forma (unaudited)
3,224
3,224
Stockholders' deficit:
Common stock, par value of $0.001 per share, 115,000,000 shares authorized; 18,735,378 and 18,999,892 shares issued and outstanding as of
September 30, 2012 and 2013, actual; 58,549,044 shares issued and outstanding as of September 30, 2013, pro forma (unaudited)
19
19
Additional paid-in capital
(27,819
)
(26,696
)
Accumulated deficit
(78,546
)
(92,423
)
Total stockholders' deficit
(106,346
)
(119,100
)
$
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
$
37,202
$
44,022
See accompanying notes to financial statements.
F-3
Table of Contents
CORIUM INTERNATIONAL, INC.
Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Year Ended September 30,
2012
2013
Revenues:
Product revenues
$
35,716
$
38,704
Contract research and development revenues
6,838
10,750
Other revenues
306
816
Total revenues
42,860
50,270
Costs and operating expenses:
Cost of product revenues
24,360
24,828
Cost of contract research and development revenues
10,244
11,856
Research and development expenses
3,966
5,496
General and administrative expenses
4,645
6,525
Amortization of intangible assets
512
541
Gain on disposal and sale and leaseback of equipment
(57
)
(177
)
Total costs and operating expenses
43,670
49,069
Income (loss) from operations
(810
)
1,201
Interest income
4
9
Interest expense
(5,247
)
(7,705
)
Change in fair value of preferred stock warrant liability
21
(14
)
Change in fair value of subordinated note embedded derivative liability
—
(7,367
)
Other income
582
—
Loss before income taxes
(5,450
)
(13,876
)
Income tax benefit (expense)
7
(1
)
Net loss and comprehensive loss
$
(5,443
)
$
(13,877
)
Net loss attributable to common stockholders, basic and diluted
(5,443
)
(13,877
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.24
)
$
(0.62
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,227,342
22,452,114
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
$
Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)
See accompanying notes to financial statements.
F-4
Table of Contents
CORIUM INTERNATIONAL, INC.
Statements of Changes in Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit
(In thousands, except share and per share
data)
Convertible Preferred
Stock
Redeemable
Common Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance — October 1, 2011
36,034,900
$
57,261
3,670,172
$
3,367
18,111,213
$
18
$
(28,006
)
$
(73,103
)
$
(101,091
)
Repayment of founder note with common stock
—
—
(155,920
)
(143
)
—
—
—
—
—
Issuance of common stock warrants in connection with debt
—
—
—
—
—
—
110
—
110
Issuance of common stock upon exercise of stock options
—
—
—
—
624,165
1
11
—
12
Stock-based compensation expense
—
—
—
—
—
—
66
—
66
Net loss and comprehensive loss
—
—
—
—
—
—
—
(5,443
)
(5,443
)
Balance — September 30, 2012
36,034,900
57,261
3,514,252
$
3,224
18,735,378
19
(27,819
)
(78,546
)
(106,346
)
Issuance of common stock warrants in connection with debt and capital lease financing
—
—
—
—
—
—
38
—
38
Issuance of common stock upon exercise of stock options
—
—
—
—
264,514
—
13
—
13
Stock-based compensation expense
—
—
—
—
—
—
330
—
330
Modification of warrants issued in connection with debt
—
—
—
—
—
—
742
—
742
Net loss and comprehensive loss
—
—
—
—
—
—
—
(13,877
)
(13,877
)
Balance — September 30, 2013
36,034,900
$
57,261
3,514,252
$
3,224
18,999,892
$
19
$
(26,696
)
$
(92,423
)
$
(119,100
)
See accompanying notes to financial statements.
F-5
Table of Contents
CORIUM INTERNATIONAL, INC.
Statements of Cash Flows
(In thousands)
Year Ended September 30,
2012
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss
$
(5,443
)
$
(13,877
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment
1,973
1,892
Gain on disposal and sale and leaseback of equipment
(57
)
(177
)
Gain on settlement of recall liability
(582
)
—
Change in fair value of preferred stock warrant liability
(21
)
14
Change in fair value of subordinated debt embedded derivative liability
—
7,367
Amortization of intangible assets
512
541
Noncash amortized debt issue costs on long-term debt
706
329
Noncash amortized debt discount
246
196
Patent costs written off
101
82
Stock compensation expense
66
330
Noncash reductions in product recall settlement
(3,041
)
—
Changes in operating assets and liabilities:
Accounts receivable, net
889
(329
)
Unbilled accounts receivable
(18
)
672
Inventories
82
(139
)
Prepaid expenses and other current assets
(563
)
(137
)
Accounts payable
(1,289
)
(878
)
Accrued expenses and other liabilities
(176
)
1,329
Deferred contract revenues
3,465
321
Recall liability
—
(168
)
Long-term interest payable
3,190
1,650
Net cash provided (used) by operating activities
40
(982
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(1,859
)
(7,163
)
Proceeds from sale of equipment
15
17
Increase in notes receivable — related parties
(49
)
(100
)
Payments for patents and licensing rights
(467
)
(693
)
Net cash used in investing activities
(2,360
)
(7,939
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
36,477
7,230
Proceeds from issuance of capital leases
84
2,266
Payments on convertible notes
(10,000
)
—
Payment of transaction costs on issuance of long-term debt
(1,671
)
(112
)
Principal payments on long-term debt
(8,792
)
(812
)
Principal payments on capital lease obligations
(548
)
(629
)
Borrowings on bank lines of credit
24,706
5,827
Payments on bank lines of credit
(26,276
)
(3,526
)
Proceeds from exercise of stock options
12
13
Net cash provided by financing activities
13,992
10,257
NET INCREASE IN CASH AND CASH EQUIVALENTS
11,672
1,336
CASH AND CASH EQUIVALENTS — Beginning of period
573
12,245
CASH AND CASH EQUIVALENTS — End of period
$
12,245
$
13,581
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest
$
766
$
4,856
Cash paid for income taxes
$
—
$
—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock warrants in connection with debt financing and equipment lease financing
$
110
$
38
Property and equipment purchases included in accounts payable and accrued liabilities
$
806
$
1,134
Issuance of payment-in-kind notes in lieu of cash interest payments
$
161
$
1,235
Reduction in notes receivable through redemption of common stock
$
143
$
—
Unpaid deferred offering costs
$
—
$
20
F-6
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies
Organization
Corium International, Inc., a Delaware corporation (the "Company"), is a commercial stage biopharmaceutical company focused on the development,
manufacture and commercialization of specialty pharmaceutical products that leverage its broad experience in transdermal and transmucosal delivery systems.
In
the normal course of business, the Company enters into collaboration agreements with partners to develop and manufacture products based on the Company's drug delivery technologies. Revenues consist
of net sales of products manufactured, royalties and profit-sharing payments based on sales of such products by partners, and fees for research and development activities under collaboration
agreements with strategic partners. The Company is also engaged in the research and development of its own proprietary transdermal drug delivery products using its proprietary technologies.
The
Company's fiscal year ends on September 30. References to "fiscal" refer to the years ended September 30.
Basis of Presentation
The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and negative cash flows from
operations. The Company has recorded net losses of $5.4 million and $13.9 million for fiscal 2012 and 2013, respectively. At September 30, 2013, the Company had an accumulated
deficit of $92.4 million and cash and cash equivalents of $13.6 million. The Company's management believes that there is significant uncertainty about its ability to operate as a going
concern. The Company's ability to operate as a going concern is dependent on the Company's ability to raise additional capital which may not be available to the Company on acceptable terms, or at all.
The Company is considering various plans to raise additional financing. The failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company's
business, results of operations, future cash flows and financial condition.
Use of Estimates
Estimates and assumptions are required to be used by management in the preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of operating revenues and operating expenses during the reporting period. Those estimates and assumptions affect revenue recognition and deferred revenues, impairment of
long-lived assets, determination of fair value of stock-based awards and other debt and equity related instruments, and accounting for income taxes. As future events and their effects cannot be
determined with precision, actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents primarily with domestic financial institutions that are federally insured within statutory limits. The Company provides credit, in the
normal course of business, to its partners and performs credit evaluations of such partners.
F-7
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
Four
partners accounted for 94% and 99% of the Company's revenues for fiscal 2012 and 2013. These same partners accounted for 97% and 100% of accounts receivable as of September 30, 2012 and
2013.
Revenue Recognition
The Company generates revenues from agreements for the development and commercialization of its products. The terms of the agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales and royalties and profit sharing on product sales derived from
partner agreements. The Company recognizes revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable;
and collectability is reasonably assured.
Revenue
related to multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This
determination is generally based on whether any deliverable has stand-alone value to the partner. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement
consideration to identified units of accounting. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. Typically, the Company has not granted licenses to
partners at the beginning of its arrangements and thus there are no delivered items separate from the research and development services provided. As such, upfront payments are recorded as deferred
revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance that is consistent with the terms of the research and
development obligations contained in the agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement.
Amounts
related to research and development funding are generally recognized as the related services or activities are performed, in accordance with the contract terms. To the extent that agreements
specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified rates in
the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally, all of the
agreements provide for reimbursement of third-party expenses, and such reimbursable expenses are billed as revenues as incurred.
The
arrangements may include contractual milestones, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events contained in
the Company's arrangements coincide with the progression of the Company's product candidates from research and development, to regulatory approval and through to commercialization. The process of
successfully developing a new product, having it approved from a regulatory perspective and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn
from its partners involve a significant degree of risk to achieve. Research and development milestones in the Company's strategic alliances may include the following types of events: completion of
pre-clinical research and development work, completion of certain development events and initiation of clinical trials. Regulatory milestones may include the following types of events: filing of
regulatory applications with the Food and Drug Administration and approval of the regulatory applications by the Food and Drug Administration. Commercialization
F-8
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
milestones
may include product launch. The Company recognizes milestone payments in its entirety in the period in which the milestone is achieved.
Upon
commercialization, revenues are generated from product sales, royalties and profit sharing. Product sales are generally recognized as products are shipped and title and risk of loss pass to the
partner. Royalties and profit sharing are generally recognized when the Company's partners sell the product to their customers and are based on a percentage of the Company's partners' gross sales or
net profits for products subject to our agreements. Royalties and profit sharing totaled $6.4 million and $7.8 million for fiscal 2012 and 2013.
Other
revenues consists of income derived from the Company's arrangements with its partners, whereby a portion of the revenues received under these agreements relates to rental income from embedded
leases associated with these relationships, as well as revenues associated with licenses granted to a third party for intellectual property related to thin film dressings.
Research and Development
Research and development expenses are primarily comprised of salaries and benefits associated with research and development personnel, overhead and
facility costs, preclinical and non-clinical development costs, clinical trial, and related clinical manufacturing costs, contract services, and other outside costs. Research and development costs,
including costs to be subsequently reimbursed under development contracts, are charged to expense when incurred.
Advertising Costs
Advertising costs are expensed when incurred and are included in general and administrative expenses in the accompanying statements of operations. The
Company's advertising expenses were immaterial for fiscal 2012 and 2013
Stock-Based Compensation
The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. The Company determines the fair value of such awards using the Black-Scholes option-pricing model (the "Black-Scholes model"), which incorporates
certain assumptions as follows:
Expected
Term — The expected term represents the period that the stock-based awards are expected to be outstanding. As the Company's historical share option exercise experience did
not provide a reasonable basis upon which to estimate expected term because of a lack of sufficient data points, the Company estimated the expected term by using the simplified method.
Risk-Free
Interest Rate — The risk-free interest rate is based on the implied yield currently available on U.S. Treasury issues with a term consistent with the expected term.
Expected
Dividend — The expected dividend is based on management's current expectation about the Company's anticipated dividend policy. The Company does not anticipate declaring
dividends in the foreseeable future.
F-9
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
Expected
Volatility — Because the Company is not publicly traded, the volatility was based on the average of selected public companies in the same or similar business. When
selecting similar companies, the Company considered the industry, stage of life cycle, size, and financial leverage.
The
Company recognizes compensation expense for the portion of options that are expected to vest. Therefore, the Company applied estimated forfeiture rates that were derived from historical employee
termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
Income Taxes
The Company accounts for income taxes based on the liability method. Under the liability method, deferred tax assets and deferred tax liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and deferred tax liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and deferred tax liabilities of a change in tax rates is recognized in operations in the period that includes the
enactment date. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.
Comprehensive Income (Loss)
During fiscal 2012 and 2013, the Company did not recognize any other comprehensive income (loss) and, therefore, the net income (loss) and
comprehensive income (loss) was the same for all periods presented.
Net Loss and Pro Forma Net Loss per Share Attributable to Common Stockholders
The Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required
for companies with participating securities. The Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by
the weighted average number of shares of common stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential
dilutive common stock equivalents outstanding for the period. For purposes of the diluted calculation, convertible preferred stock, options to purchase common stock and common stock warrants are
considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. In contemplation of
an initial public offering, the Company has presented the unaudited pro forma basic and diluted net loss per share attributable to common stockholders, which has been computed to give effect to the
conversion of the convertible preferred stock into shares of common stock and the conversion of preferred stock warrants to common stock warrants as of the beginning of the respective period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
The Company generally invests funds that are in excess of current needs in high-credit-quality instruments, such as obligations of U.S. government agencies, high-credit-rating commercial paper, and
money market funds.
F-10
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at invoiced amounts. An allowance for doubtful accounts is established as needed based on a specific assessment of all
invoices that remain unpaid following normal partner payment periods. All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that the
determination is made. The allowance for doubtful accounts was $0 as of September 30, 2012 and 2013.
Inventories
Inventories are stated at the lower of cost, on a first-in, first-out basis, or market. The Company records an allowance for excess and obsolete
inventory based on anticipated obsolescence, usage, and historical write-offs.
Deferred Offering Costs
Deferred offering costs, which consist of direct incremental legal, consulting, and accounting fees relating to the IPO, are capitalized. The deferred
offering costs will be offset against IPO proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed. As of September 30,
2013, the Company capitalized $20,000 of deferred offering costs in prepaid expenses and other current assets on the balance sheet. No amounts were deferred as of September 30, 2012.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Equipment is depreciated over its useful life, ranging
from 3 to 8 years using the straight-line method. Leasehold improvements are depreciated or amortized over the shorter of the lease term or their useful lives ranging from 3 to 15 years
using the straight-line method. Expenditures for maintenance and repairs are charged to expense as incurred.
Capital Leases
The Company leases several pieces of equipment under capital lease arrangements. During the year ended September 30, 2011, the Company
completed two transactions, whereby existing manufacturing equipment was sold to and leased back from the lessor. Under these transactions, a gain on the sale was deferred and is being amortized over
the life of the lease. As of September 30, 2012 and 2013, there was $0.3 million and $0.1 million of unrecognized gain on sale of leased assets. Equipment leased under capital
leases is amortized over the life of the lease term using the straight-line method.
Intangible Assets
Intangible assets consist primarily of the cost of acquired patents and legal costs associated with patent development and contract acquisition costs.
These costs are capitalized and amortized over the lesser of the estimated economic lives of the patents or the underlying contracts and the remaining legal lives of the patents on a straight-line
basis, which approximates the pattern of consumption over the estimated useful lives of the assets, once a patent is granted. The Company periodically reevaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated lives of these assets.
F-11
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the assets and their eventual disposition.
Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. No impairment was recorded for fiscal 2012 and 2013.
Fair Value of Financial Instruments
Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of
judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of
these assets or liabilities are as follows:
Level I —
Inputs that are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II —
Inputs (other than quoted prices included in Level I) that are either directly or indirectly observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the instrument's anticipated life.
Level III —
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect
management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and
the risk inherent in the inputs to the model.
Recent Account Pronouncements
In May 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2011-04, Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"). This pronouncement was issued to provide a consistent definition
of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and
enhances the disclosure requirements particularly for Level III fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011,
with early adoption prohibited. The adoption of this standard on October 1, 2012 did not have an impact on the Company's financial statements.
In
June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, which requires an entity to present total comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the option to present the
components of other comprehensive income as part of the statement of changes in stockholders' equity. The Company early adopted this guidance on October 1, 2012, retrospectively. During fiscal
2012 and 2013, the Company did
F-12
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
1. Organization, Description of Business, and Summary of Significant Accounting Policies (Continued)
not
have any other comprehensive income and, therefore, the net loss and comprehensive loss was the same for all periods presented.
In
April 2011, the FASB issued new accounting guidance relating to the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. The guidance addresses effective control in repurchase agreements and eliminates the requirement for entities to consider whether the transferor
(i.e., seller) has the ability to repurchase the financial assets in a repurchase agreement. This new accounting guidance will be effective, on a prospective basis, for new transactions or
modifications to existing transactions on October 1, 2012. The adoption of this new guidance did not have an impact on the Company's financial statements.
In
February 2013, the FASB issued guidance which addresses the presentation of amounts reclassified from accumulated other comprehensive income. This guidance does not change current financial
reporting requirements, instead an entity is required to cross-reference to other required disclosures that provide additional detail about amounts reclassified out of accumulated other comprehensive
income. In addition, the guidance requires an entity to present significant amounts reclassified out of accumulated other comprehensive income by line item of net income if the amount reclassified is
required to be reclassified to net income in its entirety in the same reporting period. Adoption of this standard is required for periods beginning after December 15, 2012. This new guidance
impacts how the Company reports comprehensive income only, and will have no effect on the Company's results of operations, financial position or liquidity upon its required adoption on
October 1, 2013.
Adjustment to Prior Year Financial Statements
The Company identified an error related to its accounting for accrued vacation which relates to periods prior to fiscal 2012. Management believes the
errors are not material to any prior period financial statements. The corrections of the errors had the effect of increasing accrued expenses $0.4 million at September 30, 2012,
increasing operating expenses by $35,000 for the year ended September 30, 2012 and reducing stockholders deficit by $0.4 million at September 30, 2011.
2. Fair Value Measurements
Except as noted below, the carrying values of the Company's financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the
short period of time to maturity or repayment.
The
Company's financial instruments that are measured at fair value on a recurring basis as of September 30, 2012 and 2013, by level within the fair value hierarchy, are as follows (in
thousands):
As of September 30, 2012
Level I
Level II
Level III
Total
Preferred stock warrant liability
$
—
$
—
$
546
$
546
Subordinated note embedded derivative liability
—
—
—
—
Total financial liabilities
$
—
$
—
$
546
$
546
F-13
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
2. Fair Value Measurements (Continued)
As of September 30, 2013
Level I
Level II
Level III
Total
Preferred stock warrant liability
$
—
$
—
$
560
$
560
Subordinated note embedded derivative liability
—
—
7,367
7,367
Total financial liabilities
$
—
$
—
$
7,927
$
7,927
The Company's Level III liabilities consist of a preferred stock warrant liability (see Note 9) and subordinated note embedded derivative liability
(Note 6). The following table sets forth a summary of the changes in the fair value of the Company's Level III financial liabilities, which are measured on a recurring basis (in
thousands):
Year Ended September 30,
2012
2013
Beginning balance
$
389
$
546
Fair value of additional warrants issued
178
—
Change in fair value of preferred stock warrants
(21
)
14
Change in fair value of subordinated note embedded derivative liability
—
7,367
Ending balance
$
546
$
7,927
The following financial instruments have carrying values which differ from their fair value as estimated by the Company based on market quotes for instruments
with similar terms and remaining maturities (Level III valuation technique) (in thousands):
As of September 30, 2012
Carrying
Value
Fair
Value
Difference
Long-term debt
$
29,758
$
29,758
$
—
Convertible notes
10,000
12,705
2,705
Subordinated note
13,000
8,032
(4,968
)
Total
$
52,758
$
50,495
$
(2,263
)
As of September 30, 2013
Carrying
Value
Fair
Value
Difference
Long-term debt
$
37,413
$
37,413
$
—
Convertible notes
9,399
14,316
4,917
Subordinated note
13,000
9,508
(3,492
)
Total
$
59,812
$
61,237
$
1,425
F-14
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
3. Balance Sheet Components
Inventories
Inventories consist of the following (in thousands):
As of September 30,
2012
2013
Raw materials
$
2,220
$
2,410
Work in process
1,431
1,546
Finished goods
783
667
Total inventories, cost
4,434
4,623
Less inventory reserves
(65
)
(115
)
Total inventories, net
$
4,369
$
4,508
Property and equipment
Property and equipment consist of the following (in thousands):
As of September 30,
2012
2013
Machinery and equipment
$
10,928
$
11,145
Manufacturing equipment acquired under capital leases
1,825
1,825
Transportation equipment
48
25
Furniture and fixtures
931
928
Computer equipment and software
389
401
Leasehold improvements
3,080
3,145
Land
210
210
Construction in progress
1,809
8,843
Total property and equipment, gross
19,220
26,522
Accumulated depreciation and amortization
(12,196
)
(13,900
)
Total property and equipment, net
$
7,024
$
12,622
The Company recorded depreciation and amortization of property and equipment of $2.0 million and $1.9 million during fiscal 2012 and 2013.
F-15
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
4. Intangible Assets
Intangible assets and related accumulated amortization consist of the following (in thousands):
As of September 30,
2012
2013
Cost:
Patents and trademarks
$
9,075
$
9,686
Contract acquisition costs
1,682
1,677
Total carrying value
10,757
11,363
Accumulated amortization:
Patents and trademarks
(2,761
)
(3,237
)
Contract acquisition costs
(1,419
)
(1,479
)
Total accumulated amortization
(4,180
)
(4,716
)
Total intangible assets, net
$
6,577
$
6,647
The Company amortizes its intangible assets related to issued patents over the estimated useful lives of the patents, ranging from 7 to 20 years.
Amortization of issued patents, excluding impairments or abandonments, was $0.4 million and $0.5 million in fiscal 2012 and 2013.
The
estimated remaining annual amortization expenses for issued patents and trademarks as of September 30, 2013 are as follows (in thousands):
Year Ending September 30:
Amounts
2014
$
456
2015
456
2016
456
2017
456
2018
456
Thereafter
1,642
Total
$
3,922
Patents in process included in intangible assets were $2.3 million and $2.5 million during fiscal 2012 and 2013.
The
Company amortizes its intangible assets related to contract acquisition costs over their estimated useful lives, ranging from 3 to 14 years. Amortization of contract acquisition costs was
$66,000 and $65,000 in fiscal 2012 and 2013.
F-16
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CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
4. Intangible Assets (Continued)
The
estimated remaining annual amortization expense for contract acquisition cost as of September 30, 2013 are as follows (in thousands):
Year Ending September 30:
Amounts
2014
$
29
2015
29
2016
29
2017
29
2018
29
Thereafter
53
Total
$
198
5. Notes Receivable — Related Parties
Notes receivable consists of an unsecured note that is payable by one of the executive officers of the Company. The note calls for payment of half the principal and accrued interest on
December 28, 2015 and the remaining principal and interest on June 28, 2018. The note accrues interest at 1% below the prime rate, adjusted as of January 1 each year (an effective
rate of 2.25% at September 30, 2013). The Company recognized $1,000 of related party interest income from this note in fiscal 2013.
During
the year ended September 30, 2012, an unsecured note payable by one of the Company's founders, who is also a stockholder and director of the Company, and all accrued interest thereon was
settled in connection with an agreement with the founder pursuant to which the Company was permitted to repurchase 155,920 shares of common stock from the founder using the $0.1 million
indebtedness of the founder's note and accrued interest as purchase consideration. This repurchase involving this founder, was approved in 2009 by the Company's board of directors as being in the
financial interests of the Company, and was conducted under the terms of an agreement entered into between the Company and the founder in 2007, which is more fully described in Note 12. Prior
to the repurchase, the Company had recognized $3,000 of related-party interest income from the note receivable from this founder in fiscal 2012.
F-17
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
6. Debt
The Company's outstanding debt as of September 30, 2012 and 2013 consist of a bank line of credit, amounts outstanding under a term loan agreement classified as long-term debt, convertible
notes and a subordinated note as follows (in thousands):
As of September 30,
2012
2013
Bank line of credit
$
1,572
$
3,873
Long-term debt
29,758
37,413
Convertible notes
10,000
9,399
Subordinated note
13,000
13,000
Total
54,330
63,685
Less current portion, consisting of bank line of credit and long-term debt
2,129
4,330
Long-term portion
$
52,201
$
59,355
Bank Line of Credit
A previous line of credit with the Company's commercial bank expired on August 29, 2012, and was replaced with a new line of credit. The new
line of credit was completed with the Company's same commercial bank on August 31, 2012. The line of credit provides for borrowings up to $6.0 million, expires on August 31, 2014,
and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all other assets of the Company. Advances under the line of credit
are based on 80% of eligible accounts receivable. The line of credit bears interest at 0.25%, plus the bank's prime rate (an effective rate of 4.25% as of September 30, 2012 and 2013), and
provides for a minimum monthly interest charge of $5,000. In addition, the line of credit required a $60,000 facility fee which was paid in August 2013. The line of credit contains a minimum monthly
liquidity covenant of $2 million of net cash on deposit with the commercial bank. The Company was in compliance with such covenant as of September 30, 2013.
F-18
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
6. Debt (Continued)
Long-term Debt
Long-term debt was as follows (in thousands):
As of September 30,
2012
2013
Term loan agreement expiring June 30, 2017. See terms of the agreement below.
Less discount of $106 and $103 as of September 30, 2012 and 2013
$
29,055
$
36,293
Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $3 at an interest rate of 7% and is due
April 2015
150
124
Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $6 at an interest rate of 7% and is due
November 2024
—
575
Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $93 at an interest rate of 2.492% and
is due March 2013
553
—
Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $71 at an interest rate of 2.192% and
is due March 2014
—
421
Total
29,758
37,413
Less current portion
557
457
Long-term portion
$
29,201
$
36,956
On July 13, 2012, the Company completed a $35.0 million term loan agreement with a financial investment fund. In August 2012 and December 2012, the
Company drew down $29.0 million and $6.0 million under this agreement. The agreement requires interest to be paid quarterly at a simple annual rate of 15%, and that all outstanding
principal be repaid in four equal quarterly payments beginning September 30, 2016. The facility also contains a provision whereby the Company can choose to defer cash payment of 3.5% on the
original outstanding principal from the first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes under the agreement. As of
September 30, 2012 and 2013, the Company has converted $0.2 million and $1.2 million of interest into additional notes (payment-in-kind notes). Amounts outstanding under the term
loan agreement are collateralized by all of the Company's assets and the agreement contains a 1% fee on all draws and provides for a prepayment penalty on the outstanding principal if the Company
chooses to repay principal prior to maturity, or upon other specified events, including a change of control. The term loan agreement provides for financial covenants for minimum revenues and minimum
liquidity, of which the Company was in compliance as of September 30, 2012 and 2013. A portion of the proceeds of the agreement were used to repay $10.0 million of the Convertible Notes
and to repay the $6.5 million November 2011 notes payable to two of the Company's other lenders (described below).
On
November 7, 2011, the Company issued a $6.5 million note payable to its commercial bank and another financial institution. The note called for monthly interest payments (9.04% annual
interest rate) through March 31, 2012. The outstanding principal was to be repaid in 30 equal monthly installments,
F-19
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
6. Debt (Continued)
plus
interest. The note was collateralized by all of the Company's assets. The note contained a 1% up-front loan fee, a 6% fee at maturity, and a 5% prepayment fee. The proceeds of the November 2011
note were used to repay the then-existing notes payable to the bank. The November 2011 note was paid off in August 2012 with the proceeds of the term loan agreement.
Convertible Notes
In 2008 and 2009, the Company issued convertible bridge notes (the "Convertible Notes") and warrant purchase agreements to several of the existing
Series C stock investors, whereby the Company raised a total of $20.0 million. As originally issued, the Convertible Notes accrued interest at 10% per year and matures on the earliest of
July 31, 2009, the consummation of a significant sale of assets of the Company outside the normal course of business, or upon an uncured event of default. Subsequently, the maturities of the
Convertible Notes were initially extended to October 31, 2009, after which they became due. In connection with
the closing of the $35 million term loan agreement in July 2012, the Company further extended the maturity date of the Convertible Notes to July 1, 2017, and as a result the Convertible
Notes are classified as a long-term obligation as of September 30, 2012 and 2013. Interest has not been paid on the Convertible Notes since inception and is therefore, presented as long-term
accrued interest.
The
Convertible Notes are convertible into preferred stock of the Company. Upon completion of the Company's next preferred stock equity financing, the Convertible Notes will convert automatically into
the series of preferred stock issued in that financing, at a conversion price equal to the price per share for such financing. The Convertible Notes are secured by all assets of the Company, with such
security interest being subordinated to the security interest granted by the Company to its commercial bank and the $35 million term loan agreement. Pursuant to an intercreditor agreement the
Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity.
The
Convertible Notes also provide for an amendment of the voting agreement between the Company and the majority of its stockholders, pursuant to which the major investor has the right to increase the
maximum size of the board of directors to 11 and the major investor also has the right to appoint up to 6 of the directors. As of September 30, 2013, the major investor had not exercised either
of these rights.
The
Convertible Notes also provide for the issuance of common stock warrants exercisable for a number of shares equal to 60% of the principal amount of the Convertible Notes, divided by the conversion
price of the Convertible Notes, which is, initially, the original issue price of the Series C preferred stock. The warrants are only exercisable following conversion of the Convertible Notes
into preferred stock and will be exercisable for shares of common stock of the Company. As of September 30, 2012, the warrants had all been issued, with an expiration date five years from the
date of each corresponding Convertible Note's issuance (see Note 9).
During
fiscal 2013, the carrying value of the Convertible Notes was reduced by $0.6 million due to the recognition of value associated with the modification of common stock warrants issued in
connection with the Convertible Notes.
During
fiscal 2012, the Company repaid $10.0 million of the outstanding Convertible Notes using proceeds of the July 2012 term loan agreement.
F-20
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
6. Debt (Continued)
Subordinated Note
In 2009, the Company issued a subordinated note (the "Subordinated Note") to one of the existing Series C preferred stock investors raising a
total of $13.0 million. The Subordinated Note accrues simple interest at 5% per year and had an original maturity of the earliest of March 31, 2010, the consummation of a significant
sale of assets of the Company outside the normal course of business, or upon an uncured event of default. In connection with the closing of the term loan agreement during the year ended
September 30, 2012, the maturity of the Subordinated Note was extended to July 1, 2017, and, as a result, the Subordinated Note is classified as a long-term obligation as of
September 30, 2012 and 2013. Interest has not been paid on the Subordinated Note since inception and is therefore, presented as long-term accrued interest.
The
Subordinated Note is secured by all assets of the Company, with such security interest subordinated to the security interest granted by the Company to both its commercial bank and the term loan
agreement. Pursuant to an intercreditor agreement the Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity.
If
the Company consummates a merger of the Company or a sale of all or substantially all of the Company's assets, or a significant asset sale prior to the full repayment of the Subordinated Note,
then, at the written election of the subordinated note holder, the holder of the Subordinated Note will be entitled to be repaid the entire outstanding balance under the Subordinated Note plus an
additional amount equal to the outstanding principal under the Subordinated Note, plus all accrued interest. The Company has determined that this feature is an embedded derivative requiring
bifurcation and separate accounting. The fair value of this embedded derivative liability was $0 and $7.4 million as of September 30, 2012 and 2013. The fair value of the embedded
derivative was measured using a with and without valuation methodology. The fair value is primarily driven by the assessment of the probability and timing of scenarios which would trigger the payment
of the additional amount equal to the outstanding principal totaling $13.0 million under the Subordinated Note. The probability of such qualifying transactions increased greatly in the year
ended September 30, 2013. The change in fair value of $7.4 million was recorded to change in fair value of Subordinated Note embedded derivative liability in the year ended
September 30, 2013.
Minimum
principal payments on the Company's outstanding debt, consisting of the bank line of credit, the term loan agreement, the Convertible Notes, and the Subordinated Note, as of
September 30, 2013 are as follows (in thousands):
Year Ending September 30:
Amounts
2014
$
4,330
2015
107
2016
9,112
2017
49,716
2018
46
Thereafter
374
Total
$
63,685
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Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
7. Commitments and Contingencies
Capital Leases
Certain manufacturing equipment is accounted for as a capital lease and are included in property and equipment as of September 30, 2012 and
2013.
Future
minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of September 30, 2013 is as follows (in thousands):
Year Ending September 30,
Amounts
2014
$
1,298
2015
897
2016
877
2017
73
Total minimum lease payments
3,145
Less amount representing estimated executory costs (such as taxes)
(26
)
Net minimum lease payments
3,119
Less amount representing interest
(403
)
Present value of net minimum lease payments
2,716
Less discount related to warrants
(35
)
Capital lease liability
2,681
Less current portion
(1,029
)
Long-term portion
$
1,652
Depreciation expense on equipment under capital leases was $0.6 million and $0.6 million for fiscal 2012 and 2013.
Operating Leases
The Company conducts certain operations using leased property and equipment. The property and equipment leases require the Company to pay certain
property taxes, insurance, and maintenance expense and expire on dates ranging through 2025. Total rental expense on operating leases for fiscal 2012 and 2013 amounted to $1.4 million and
$1.6 million.
Future
minimum lease payments under operating leases that have initial or remaining lease terms in excess of one year from September 30, 2013 were as follows (in thousands):
Year Ending September 30,
Amounts
2014
$
974
2015
769
2016
597
2017
599
2018
611
Thereafter
4,276
Total
$
7,826
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Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
7. Commitments and Contingencies (Continued)
Contingencies
The Company may be subject to legal proceedings and litigation arising in the ordinary course of business. The Company will record a liability when it
believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. The Company expects to periodically evaluate developments in its legal matters that could
affect the amount of liability that it has previously accrued, if any, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being, and the
estimated amount of, a loss related to such matters, and the Company's judgment may be
incorrect. The outcome of any proceeding is not determinable in advance. Until the final resolution of any such matters that the Company may be required to accrue for, there may be an exposure to loss
in excess of the amount accrued, and such amounts could be material. Management is not aware of any legal matters upon where the final disposition is expected to have a material effect on the
business. See Note 13 for further discussion regarding product liabilities.
8. Collaboration and Partner Arrangements
The Company has recognized the following revenues from its collaboration and partner agreements during fiscal 2012 and 2013 (in thousands):
As of September 30,
2012
2013
P&G
$
7,880
$
11,781
Teva
11,350
16,683
Actavis/Par
18,139
16,551
Agile
3,014
4,904
Other
2,477
351
Total revenues
$
42,860
$
50,270
The Procter & Gamble Company
In 2005, the Company entered into a multi-faceted collaboration arrangement with The Procter & Gamble Company, or P&G.
The
relationship includes a world-wide license to P&G for the use of certain of the Company's technologies for products in specific fields in which P&G operates. P&G paid the Company a
$3.0 million fee for the license plus
additional future milestone payments for each qualifying product that the Company develops for P&G. The Company has received a $2.0 million milestone for the first series of products developed
by the Company. If all of the new products currently under development for P&G are completed successfully, the Company could receive an aggregate of $5.0 million in milestone payments in
connection with the approval and launch of these products. P&G's license is perpetual and irrevocable.
The
Company entered into a long term joint development agreement under which the Company performs numerous development activities for P&G based upon agreed-upon statements of work and budgets. The
development work performed by the Company under this agreement is billed to P&G on a time and materials basis, at cost. The P&G joint development agreement expires on June 13, 2015.
F-23
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
8. Collaboration and Partner Arrangements (Continued)
The
Company also entered into a commercial supply agreement for the production of all products developed by the Company for P&G. The Company has developed and commercialized several products which are
currently marketed and sold by P&G under the brand name Crest Advanced Seal Whitestrips, or Crest Whitestrips. Several additional products are currently being developed by the Company for P&G, which
are expected to launch in 2015 and beyond.
In
addition to the other agreements, and as part of the overall collaboration agreement, the Company also acquired certain patents from P&G in 2005. In exchange for the assignment of these patents,
the Company issued 1,266,830 shares or our common stock as payment for the patent acquired. The Company also granted P&G certain co-sale and board observer rights in connection with the shares.
The
Company's current supply agreement with P&G will expire in August 2014, but the Company expects the agreement to be renewed in the first half of 2014.
Teva Pharmaceuticals USA, Inc.
In 2004, the Company entered into an arrangement with Barr Laboratories, or Barr, for four generic products. The Company entered into three separate
agreements with Barr, one in 2006 and two in 2007, to develop and commercialize additional products. In 2008, Teva Pharmaceutical Industries, Ltd., or Teva, acquired Barr. Following this
acquisition, Teva discontinued four of these development programs. One of the continuing programs has resulted in an approved product currently marketed by Teva, Clonidine Transdermal
Delivery System, or TDS, and two other products are pending regulatory approval. Under the Company's current agreements, the Company is not eligible for additional milestone payments.
Under
the agreements, the Company receives compensation for developing the products, generally on a time and materials basis. For the product currently being manufactured by the Company, we generate
product sales with a cost-plus margin and in addition, the Company receives a profit share based on "net profits" earned by Teva for each product.
In
2007, Barr invested $5.0 million in convertible notes of the Company. In 2007, the notes and all accrued interest were converted into the Series C preferred stock financing completed
by the Company, whereby Barr received 5,839,883 shares of Series C preferred stock.
The
term of each commercial agreement with Teva extends, on a product-by-product basis, through the last day of the tenth full calendar year following the launch date of each product, with automatic
one-year renewals.
Par Pharmaceutical, Inc.
On May 11, 2002, the Company entered into an arrangement to pursue development and commercialization of a generic version of the transdermal
fentanyl product with Abrika LLLP. In 2007, Abrika was acquired by Actavis, Inc. Under the agreements, the Company agreed to develop the product and to assist Actavis with the regulatory
filing and ultimate approval of such product. In October 2012, Actavis divested this product to Par who assumed the various agreements. Under the Company's current agreements, the Company is not
eligible for additional milestone payments.
The
Company developed the product, Fentanyl TDS, which was commercially launched in 2007. The Company was paid for the development work performed under the agreements and currently generates
F-24
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
8. Collaboration and Partner Arrangements (Continued)
product
sales at a cost-plus margin and in addition, receives a royalty on the net sales of the product by Par.
As
part of the initial agreements, Abrika, in consideration for paying for the development of the product received 1,009,860 shares of the Company's common stock.
The
commercial agreement with Par has a term of twenty years, and expires on November 12, 2023.
Agile Therapeutics, Inc.
In 2006, the Company entered into an arrangement with Agile to develop a new transdermal patch product using the Agile's previously developed
technology. Under the arrangement, the Company has performed process development and manufacturing of the product. For the development work performed, Agile paid the Company in multiple forms,
including time and materials and milestones for achievement of certain development goals. During fiscal 2012 and 2013, Agile paid the Company $3.5 million towards leasehold improvements
incurred by the Company to its facilities to provide for adequate manufacturing space for this product once it is approved, which will be recognized as rental income in future years as the facility is
used for production. In addition, in the year ended September 30, 2013, Agile paid $0.6 million to the Company for idle facility charges, which are presented on the income statement as
other income. Under the Company's current agreements, the Company is not eligible for additional milestone payments.
The
term of the Company's contract with Agile continues until the Company has commercially produced an agreed-upon quantity of patches, currently projected to occur no earlier than five years
following the commercial launch of AG200-15.
Other Partner Arrangements
In 2013, the Company entered into an arrangement for the development of two generic transdermal products. Under the arrangement, the partner and the
Company will equally fund all costs of developing the products. The Company will be reimbursed for its share of all out of pocket costs and will be required to reimburse the partner for its share of
all development, clinical and other costs up to and including regulatory filing. The Company will also be reimbursed for certain development milestones which will total $3.5 million for both
products. The milestones are based on achieving certain stages of development. The Company received $0.5 million of these milestones upon signing the agreement and is amortizing these into
income over the expected development period of the products. Upon regulatory approval, the Company will manufacture and sell the product to its partner and will be paid on a cost-plus basis with no
margin. In addition, the Company will be paid an equal share of the profits of each product, based on the net profits of each product of the partner. The profit sharing percentage may be less than 50%
for one of the products if the Company elects not to participate in the funding of any potential regulatory litigation incurred by the partner related to the patents that have not fully expired for
the brand name product.
9. Warrants
The Company issued warrants to purchase shares of the Company's stock as part of several transactions from 2008 through 2013. The warrants have been recorded as either equity instruments or liability
instruments based on the terms of the warrants.
F-25
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
9. Warrants (Continued)
Preferred Stock Warrants
The Company issued warrants to purchase Series C preferred stock, which comprise the only warrants to purchase preferred stock issued by the
Company as of September 30, 2013.
In
connection with various financing transactions prior to October 1, 2012, the Company issued warrants for 2,714,594 shares of Series C preferred stock. During fiscal 2012, 1,399,760 of
these warrants expired unexercised. All of the Series C preferred stock warrants are exercisable for a period of five years from issuance except certain warrants to purchase 163,522 shares of
Series C preferred stock that expire upon the earlier of five years and the closing of an initial public offering. The warrants are exercisable in cash or through a cashless exercise provision.
Under the cashless exercise provision, the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the
Series C preferred stock at the time of exercise of the warrant after deducting the aggregate exercise price. In the event that all outstanding shares of the Series C convertible
preferred stock are converted into common stock, the warrants will be exercisable for the same number of shares of common stock.
For
the year ended September 30, 2012, the Company issued 425,161 warrants to purchase Series C preferred stock, with a fair value at issuance of $0.2 million in connection with
the note payable provided by the Company's commercial bank and another financial institution (see Note 6).
As
of September 30, 2012 and 2013, warrants to purchase 1,739,992 shares of Series C preferred stock were outstanding with a weighted average exercise price of $0.90 per share. Of this
amount, warrants to purchase 1,380,241 shares of Series C preferred stock contain antidilution protection. Therefore, the Company evaluated these warrants as derivative instruments, and
accordingly recorded the warrants as liabilities at fair value at the time of issuance, with the fair value then adjusted at each subsequent balance sheet date. The Company will continue to adjust the
preferred stock warrant liabilities for changes in the fair value of the warrants until the earlier of (i) the exercise of the warrants, (ii) the conversion of the underlying preferred
stock into common stock, at which time, the liability will be reclassified to stockholders' equity, and (iii) the expiration of the warrants.
The
fair value of the outstanding convertible preferred stock warrants containing antidilution protection were remeasured as of each year end using the Option Pricing Model in fiscal 2012 and the
Probability-Weighted Expected Return Model in fiscal 2013. We use a number of assumptions to estimate the fair value including the likelihood of various scenarios, the expected volatility and the fair
value of the underlying stock under each scenario. These assumptions are:
As of September 30,
2012
2013
Remaining contractual term (in years)
6.07 - 9.24
5.07 - 8.24
Risk-free interest rate
0.62 - 1.64%
1.39 - 2.02%
Expected volatility
65 - 75%
68 - 77%
Expected dividend rate
0%
0%
The fair value of these warrants totaled $0.5 million and $0.6 million as of September 30, 2012 and 2013.
F-26
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
9. Warrants (Continued)
Common Stock Warrants
In connection with the issuance of the Convertible Notes in 2008 and 2009 (see Note 6), the Company issued warrants to the Convertible Note
holders for the purchase of an aggregate of 12,000,000 shares of common stock, at an exercise price of $0.21. As of September 30, 2012, any discount recognized as a result of issuing these
warrants had been fully amortized. The fair value of these warrants upon issuance was recorded in stockholders' deficit.
In
July 2012, the Company issued a warrant for the purchase of 823,304 shares of common stock with a fair value totaling $0.1 million in connection with the term loan agreement that closed in
July 2012 (see Note 6). All of these warrants issued are exercisable until the earlier of five years from issuance and the closing of an initial public offering of common stock. The fair value
of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with the following assumptions: common stock value of $0.22 per share, contractual term of
5 years, risk-free interest rate of 0.62%, expected volatility of 75%, and expected dividend yield of 0%.
In
December 2012, the Company issued a warrant for the purchase of 170,339 shares of common stock with a fair value totaling $23,000 in connection with the second drawdown under this term loan
agreement (see Note 6). All of these warrants issued are exercisable until the earlier of five years from issuance and the closing of an initial public offering of common stock. The fair value
of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with the following assumptions: common stock value of $0.22 per share, contractual term of
5 years, risk-free interest rate of 0.63%, expected volatility of 75%, and expected dividend yield of 0%.
In
addition, the Company issued a warrant for the purchase of 82,000 shares of common stock with a fair value totaling $15,000 in connection with the lease arrangement that closed in September 2013
with an existing Series C preferred stock investor (see Note 7). The fair value of the warrant upon issuance was calculated using the Black-Scholes option-pricing valuation model with
the following assumptions: common stock value of $0.30 per share, contractual term of 5 years, risk-free interest rate of 1.41%, expected volatility of 76%, and expected dividend yield of 0%.
10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit
Convertible Preferred Stock
Convertible preferred stock as of September 30, 2012 and 2013 consists of the following (in thousands, except for share and per share data):
Shares Authorized
Original
Issue Price
Shares Issued and
Outstanding
Aggregate
Liquidation Amount
Series A
1,114,100
$
0.220
1,114,066
$
490
Series B
7,602,200
0.875
7,602,132
6,652
Series C
57,000,000
0.917
27,318,702
50,119
Balance as of September 30, 2012 and 2013
65,716,300
36,034,900
$
57,261
Voting Rights
— The Series A, B, and C preferred stockholders have a right to the number of votes
equal to the number of shares of common stock issuable upon conversion of the preferred stock, except as otherwise
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Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)
required
by law. The Series C stockholders have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. In addition, all
preferred stockholders, as a class, have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions.
Dividends
— The Series A, B, and C preferred stockholders are entitled to receive noncumulative dividends, if and when declared by the board of directors
prior and in preference to any dividend on common stock, at the rate of 8% of the original issue price.
Conversion
— Each share of preferred stock may be converted, at the option of the holder, into such number of fully paid and nonassessable shares of common stock as
is determined by dividing the original issue price for the relevant series of preferred stock by the then-applicable conversion price in effect at the time of conversion. The current conversion ratio
for all outstanding shares of preferred stock is one-for-one. Each share of preferred stock will automatically convert to common stock upon the consent of holders of at least 67% of the shares of
preferred stock outstanding, or the closing of an underwritten registered public offering of shares of common stock that reflects a value of the Company not less than $3.68 per share and results in
gross proceeds of at least $50.0 million.
Liquidation
— In the event of a liquidation, dissolution, or winding up of the Company, the Series C preferred stockholders are entitled to a preference
payment prior to any distribution of assets or surplus funds of the Company to the Series A and B preferred stockholders or to the common stockholders. The liquidation preference payments to
the Series C preferred stockholders will be two times the original issuance price of the Series C preferred stock, plus any accrued but unpaid dividends. Upon completion of the
preference payment to the Series C preferred stockholders, the Series A and B preferred stockholders are entitled to share equally in preference payments until the Series B
preferred stockholders receive one times the original issuance price of the Series B preferred stock; thereafter, only the Series A preferred stockholders receive preference payments
until they have received a cumulative amount of two times the original issuance price of the Series A preferred stock. All of the foregoing preferred stock preferences must be paid prior to any
distribution of any assets or surplus funds of the Company to the common stockholders. The Company classifies the convertible preferred stock outside of stockholders' deficit and records it at maximum
liquidation value as the shares contain liquidation features that are not solely within its control.
Participation
— In the event of a liquidation, dissolution, or winding up of the Company, and only after all of the Series A, B, and C preferred stockholders
have received all of their preference payments, any remaining assets or surplus funds of the Company will be distributed ratably to the common stockholders and Series B preferred stockholders
as if the Series B preferred stock had all been converted into common, but only to the extent that Series B stockholders will be entitled to receive a maximum of one times the original
issuance price of the Series B preferred stock from such distribution.
F-28
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)
Common Stock
The Company was authorized to issue up to 115,000,000 shares of common stock as of September 30, 2012 and 2013 at par value of $0.001 per
share. The Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows:
As of September 30,
2012
2013
Issuances under stock option plans
10,354,405
17,996,634
Conversion of convertible preferred stock
36,034,900
36,034,900
Issuances upon exercise of convertible preferred stock warrants
1,739,992
1,739,992
Issuances upon exercise of common stock warrants
12,823,304
13,075,643
60,952,601
68,847,169
Repurchases of Common Stock from Founders
— In connection with the Series C financing the Company, in accordance with specific stock repurchase agreements
approved by the board of directors, purchased from the two founders an aggregate of 2,180,313 shares of common stock at a purchase price of $0.9173 per share. The stock repurchase agreements also
provide for the Company to repurchase an additional total of 2,180,313 shares of common stock held by each of the two founders at a price of $0.9173 per share, in four separate closings, at six-month
intervals of 408,809, 408,809, 545,078, and 817,617 shares from each founder. These agreements were amended in March 2008 to suspend the Company's obligation to repurchase these shares if, in the
discretion of the Company's board of directors, any such repurchase would result in a material adverse effect on the Company's financial condition. As these shares are conditionally redeemable, they
are classified outside of stockholders' deficit.
From
March 2008 through September 2012, the Company's board of directors has determined that it would not be in the best financial interests of the Company to use cash to repurchase any of the
founders' shares, but has authorized the Company to use non-cash consideration for such repurchases under certain conditions. In December 2009, the board of directors determined that it was in the
Company's interests to accept a proposal by
a founder to use the cancellation of all of that founder's then-current indebtedness to the Company, comprising the balance on a note receivable and all accrued interest, as purchase consideration in
order to effect a partial repurchase under the founder's stock repurchase agreement with the Company. Accordingly, the Company repurchased 690,454 shares from this founder, reducing the agreement to
repurchase shares from that founder to 1,489,859. Following the repurchase, the founder resumed periodic borrowing from the Company on the same terms of the original note. In September 2012, the
Company received a similar proposal from the same founder in which that founder agreed to allow the Company to repurchase 155,920 shares from that founder using the cancellation in full of that
founder's note and accrued interest owed to the Company, as well as the termination of that founder's right to borrow further amounts from the Company, as consideration (see Note 5). This
repurchase by the Company reduced the Company's number of shares that can be repurchased from that founder from 1,489,859 to 1,333,939 shares.
F-29
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
10. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)
As
of September 30, 2012 and 2013, the Company has a remaining agreement to repurchase 1,333,939 from one founder and 2,180,313 from the other founder, but such repurchase is contingent on
approval by the board of directors.
11. Stock-Based Compensation
Equity Incentive Plan
As of September 30, 2013, the Company has two stock option plans, one sponsored by the Company, or the Corium Plan and the stock option plan of
StrataGent, Inc., or the StrataGent Plan. StrataGent, Inc. was acquired by the Company as a wholly owned subsidiary on September 20, 2007. The unexpired, unexercised options
outstanding for those employees of StrataGent who remained Company employees after the merger was effected were assumed by the Company. Each StrataGent option became exercisable into whole shares of
Corium stock based on an agreed exchange ratio and per share exercise price such that the total value of the option grant did not change. The Company elected to make no further grants under the
StrataGent Plan; however its terms continue to govern all options issued under that plan. No additional shares available for grant were assumed by the Company, and any options that were returned to
the pool subsequent to the merger were canceled and were not made available for future grants. This wholly owned subsidiary was dissolved during 2008.
The
Corium Plan consists of the 2002 stock option plan that expired in 2012 and the 2012 equity incentive plan which was adopted in November 2012. Under the Corium Plan, there are 2,508,950 shares of
common stock reserved for issuance as of September 30, 2013. The exercise price of each option issued under the Corium Plan is no less than the fair value of the Company's stock on the date of
the grant as determined by the board of directors. The maximum term of the options is 10 years and the maximum vesting period is 4 years. The Company granted 10,032,607 stock options
under the Corium Plan during fiscal 2013.
F-30
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
11. Stock-Based Compensation (Continued)
A
summary of activity under the Corium Plan during fiscal 2012 and 2013 is as follows:
Shares
Available
for Grant
Stock
Options
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
(In thousands)
Balance — October 1, 2011
1,775,686
8,220,394
$
0.34
Granted
—
—
—
Exercised
—
—
—
Cancelled
560,416
(560,416
)
$
0.66
Balance — September 30, 2012
2,336,102
7,659,978
$
0.31
5.20
Additional shares authorized
8,000,001
—
—
Granted
(10,032,607
)
10,032,607
$
0.22
Exercised
—
(45,500
)
$
0.23
Forfeited
862,516
(862,516
)
$
0.21
Cancelled
1,342,938
(1,342,938
)
$
0.83
Balance — September 30, 2013
2,508,950
15,441,631
$
0.22
7.22
$
1,287
Options exercisable — September 30, 2013
8,322,451
$
0.21
5.44
$
718
Options vested and expected to vest — September 30, 2013
13,166,525
$
0.22
7.22
$
1,105
All outstanding options under the Corium Plan as of September 30, 2013 have an exercise price between $0.21 and $0.23 per share.
The
weighted average grant date fair value of options granted fiscal 2013 was $0.13. No stock options were granted during fiscal 2012. The Company estimated the fair value of stock options granted
during fiscal 2013 using the Black-Scholes option pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair
value of the employee stock options was estimated using the following assumptions:
Expected term (in years)
2.50 - 6.08
Risk-free interest rate
0.70% - 1.38%
Expected volatility
71% - 75%
Expected dividend rate
0%
F-31
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
11. Stock-Based Compensation (Continued)
A summary of activity under the StrataGent Plan for fiscal 2012 and 2013 is as follows:
Stock Options
Outstanding
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
(In thousands)
Balance — October 1, 2011
982,490
$
0.02
Granted
—
—
Exercised
(624,165
)
$
0.02
Forfeited
—
—
Balance — September 30, 2012
358,325
$
0.02
1.82
Additional options authorized
—
—
Granted
—
—
Exercised
(219,014
)
$
0.01
Forfeited
(93,258
)
$
0.02
Cancelled
—
—
Balance — September 30, 2013
46,053
$
0.07
3.13
$
11
Options exercisable — September 30, 2013
46,053
$
0.07
3.13
$
11
Options vested and expected to vest — September 30, 2013
46,053
$
0.07
3.13
$
11
All outstanding options under the StrataGent Plan have an exercise price between $0.0174 and $0.0869 per share. There were no options granted under the
StrataGent Plan during fiscal 2012 or fiscal 2013.
Employee
stock-based compensation expense for fiscal 2012 and 2013 is classified in the statements of operations as follows (in thousands):
Years ended September 30,
2012
2013
Cost of product revenues
$
—
$
35
Cost of contract research and development revenues
—
21
Research and development
—
39
General and administrative
66
235
Total stock-based compensation
$
66
$
330
As of September 30, 2013, there was a total of $0.7 million of unrecognized employee compensation cost, net of estimated forfeitures, related to
non-vested stock option awards, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 2.1 years.
F-32
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
12. Product Recall Liability
In fiscal 2008 and fiscal 2010, Actavis issued two voluntary recalls of certain lots and strengths of Fentanyl TDS manufactured by the Company and sold and distributed by Actavis in the United States.
The Company and Actavis negotiated financial settlements for these two recalls, and the Company accrued amounts related to these settlements in fiscal 2009 and 2011. Such recall liabilities were
subsequently reduced through various mechanisms per the terms of the settlement agreements.
In
October 2012, the Company reached a revised settlement related to the First and Second Recalls which provides for a total and combined remaining liability of $5.0 million. The revised
liability will be repaid through quarterly payments in arrears based on a percentage of the average of the total net revenues recorded by the Company related to Fentanyl TDS. These payments will be
paid to Actavis starting in July 1, 2013 and continuing through April 1, 2017. To the extent that the revised settlement liability is not repaid as of April 1, 2017, the remaining
liability, if any, will be converted into the most recent form of capital stock issued by the Company in connection with a financing, at the price per share of that financing. The revised liability
does not accrue interest. As a result of the revised settlement, the Company recorded a gain on settlement of the recall liability of $0.6 million which is included in the income statement for
the year ended September 30, 2012. During the year ended September 30, 2013, the Company repaid $0.2 million of this liability.
The
following table summarizes the changes to the product recall liability (in thousands):
Year Ended September 30,
2012
2013
Beginning balance
$
8,623
$
5,000
Non-cash reductions in recall liability prior to settlement
(3,041
)
—
Gain on settlement of recall liability
(582
)
—
Payment of settlement liability
—
(168
)
Ending balance
$
5,000
$
4,832
13. Product Liability
As discussed in Note 7, there are other potential liabilities that the Company may incur relating to the products it manufactures, including potential product liability claims. For fiscal 2012
and 2013, the Company has provided a reserve for these claims taking into account the insurance coverage maintained for such claims, the nature and extent of such claims, and the Company's past
success in defending and/or settling such claims. The Company does not expect that the financial impact that could arise from such claims will be material.
F-33
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
13. Product Liability (Continued)
The
following table summarizes the changes to the product liability reserve (in thousands):
Year Ended September 30,
2012
2013
Beginning balance
$
500
$
720
Settlement payments
(307
)
(1,300
)
Expense
527
670
Ending balance
$
720
$
90
14. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of the Company's basic and diluted net loss per share attributable to common stockholders during fiscal 2012 and 2013 (in thousands, except share and per
share data):
Year Ended September 30,
2012
2013
Net loss attributable to common stockholders, basic and diluted
$
(5,443
)
$
(13,877
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,227,342
22,452,114
Net loss per share attributable to common stockholders, basic and diluted
$
(0.24
)
$
(0.62
)
The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common
stockholders for the periods presented because including them would have been antidilutive:
Year Ended September 30,
2012
2013
Convertible preferred stock
36,034,900
36,034,900
Stock options to purchase common stock
10,354,405
17,996,634
Common stock warrants
12,823,304
13,075,643
Preferred stock warrants
1,739,992
1,739,992
The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders
after giving effect to the conversion of preferred stock
F-34
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
14. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders (Continued)
into
common stock as though the conversion had occurred at the beginning of the year ended September 30, 2013 (in thousands, except share and per share data):
Year Ended
September 30, 2013
(Unaudited)
Net loss attributable to common stockholders, basic and diluted
$
(13,877
)
Pro forma adjustments to reflect change in fair value of preferred stock warrant liability
(14
)
Pro forma net loss per share attributable to common stockholders, basic and diluted
$
(13,891
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,452,114
Pro forma adjustments to reflect assumed conversion of convertible preferred stock
36,034,900
Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted
58,487,014
Pro forma net loss per share attributable to common stockholders, basic and diluted
$
(0.24
)
15. Income Taxes
The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of the net operating loss carryforwards and research and development tax credit
carryforwards.
The
Company operates in only one jurisdiction, the United States. The following table presents a reconciliation of the tax expense (benefit) computed at the statutory federal rate and the Company's
tax expense (benefit) for the period presented (in thousands):
Year Ended September 30,
2012
2013
Income tax benefit — computed as 34% of pretax loss
$
(1,851
)
$
(4,717
)
Effect of nondeductible expenses
881
695
State and local income tax expenses
(6
)
1
Valuation allowance
876
4,270
Effect of tax credits and other
(1
)
(50
)
State deferred taxes
75
(188
)
Other
19
(10
)
Total
$
(7
)
$
1
F-35
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
15. Income Taxes (Continued)
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities as of
September 30, 2012 and 2013 are as follows (in thousands):
As of September 30,
2012
2013
Deferred tax assets:
Net operating loss carryforward
$
21,493
$
21,491
Depreciation
483
720
Accrued expenses
944
1,782
Research and development credit
1,920
1,970
State deferred taxes
1,777
1,965
Subordinated debt embedded derivative
—
2,505
Other
654
801
Gross deferred tax assets
27,271
31,234
Valuation allowance
(26,733
)
(30,997
)
Net deferred tax assets
538
237
Deferred tax liabilities:
Other
(538
)
(237
)
Gross deferred tax liabilities
(538
)
(237
)
Net deferred tax liabilities
$
—
$
—
The disclosures of gross deferred tax assets and liabilities presented above have been restated to provide additional information on the components of deferred
tax assets and to correct other classification errors. These changes had no impact on the balance sheet or results of operations.
As
of September 30, 2013, the Company had net operating loss carryforwards for federal and state income tax purposes of $63.2 million and $12.0 million. These net operating loss
carryforwards will expire, if not utilized, beginning in 2026 and 2017 for federal and state income tax purposes, respectively.
Realization
of deferred tax assets is dependent on future taxable income, the existence and timing of which is uncertain. Based on the Company's history of losses, management has determined it cannot
conclude that it is more likely than not that the deferred tax assets will be realized, and accordingly has placed a full valuation allowance on the net deferred tax assets. The valuation allowance
increased by $0.9 million and $1.8 million in fiscal 2012 and 2013.
As
of September 30, 2013, the Company had credit carryforwards of $2.0 million and $1.3 million available to reduce future taxable income, if any, for federal and California state
income tax purposes. The Federal credit carryforwards begin to expire in 2022. California credits have no expiration date.
The
Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a
corporation. Accordingly, the Company's ability to utilize net operating losses and credit carryforwards may be significantly limited in the future as a result of such an ownership change.
F-36
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
15. Income Taxes (Continued)
The
Company did not have any material unrecognized tax benefits as of September 30, 2012 and 2013. It is difficult to predict the final timing and resolution of any particular uncertain tax
position. Based on the Company's assessment, including experience and complex judgments about future events, the Company does not expect that changes in the amount of unrecognized tax benefits during
the next 12 months will have a significant impact on the Company's financial position or results of operations.
It
is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, as necessary. There was no interest expense or
penalties related to unrecognized tax benefits recorded through September 30, 2013.
The
Company files income tax returns in the U.S. federal jurisdiction as well as in California and Michigan. The tax years ending September 30, 2010 to September 30, 2012 remain open to
examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes
generated in those early years, which have been carried forward and may be audited in subsequent years when utilized.
16. Employee Benefit Plan
The Company has a defined-contribution plan that allows for discretionary contributions from the Company. Contributions totaled $80,000 and $90,000 for fiscal 2012 and 2013.
17. Segment and Enterprise-Wide Information
The Company's chief operating decision maker is its chief executive officer. The chief executive officer reviews its operating results on an aggregate basis for purposes of allocating resources and
evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or operating results for levels or components.
Accordingly, the Company has a single reporting segment and operating unit structure.
All
of the Company's revenues are derived from partners located in the United States and all long-lived assets are located in the United States.
18. Subsequent Events
The Company has evaluated subsequent events through March 3, 2014, the date the financial statements were available to be issued.
Recapitalization
In December 2013, the Company entered into an amendment and conversion agreement with Essex Woodlands pursuant to which the Company and Essex
Woodlands (i) amended the Convertible Notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of the Company's common
stock immediately prior to the closing of an initial public offering of the Company's common stock or into 20,569,231 shares of the Company's Series C preferred stock immediately prior to the
first closing of a qualified equity financing that occurs prior to the closing of an initial public offering of the Company's common stock and the Convertible Notes will be terminated;
(ii) amended the terms of the Subordinated Note to provide that it will automatically convert either into 34,210,182 shares of the Company's common stock immediately prior to the closing of an
initial public
F-37
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Financial Statements (Continued)
As of and for the years ended September 30, 2012 and 2013
18. Subsequent Events (Continued)
offering
of the Company's common stock or into 34,210,182 shares of a new series of the Company's preferred stock (with identical rights, preferences and privileges as the Company's Series C
preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs prior to the closing of an
initial public offering of the Company's common stock and the Subordinated Note will be terminated; and (iii) requires Essex Woodlands to effect the automatic conversion of
all outstanding shares of the Company's preferred stock in connection with the completion of an initial public offering of the Company's common stock.
Simultaneously,
the Company also entered into a repurchase agreement pursuant to which the Company agreed to repurchase 10,885,884 shares of the Company's common stock for an aggregate repurchase
price of $5.2 million from two of the Company's founders. These repurchases will occur immediately prior to the earlier of the closing of an initial public offering of the Company's common
stock and the first closing of a qualified equity financing, and these repurchases will satisfy in full all of the Company's remaining obligations under the repurchase agreements.
* * * **
F-38
Table of Contents
CORIUM INTERNATIONAL, INC.
INDEX TO CONDENSED FINANCIAL STATEMENTS
As of and for the three months ended December 31, 2013 and 2012
Page
Condensed Balance Sheets
F-40
Condensed Statements of Operations and Comprehensive Loss
F-41
Condensed Statements of Convertible Preferred Stock, Redeemable Common Stock and
Stockholders' Deficit
F-42
Condensed Statements of Cash Flows
F-43
Notes to Condensed Financial Statements
F-44
F-39
Table of Contents
CORIUM INTERNATIONAL, INC.
Condensed Balance Sheets
(In thousands, except share and per share data)
As of
September 30,
2013
As of
December 31,
2013
Pro Forma
Stockholders'
Equity as of
December 31,
2013
(unaudited)
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
13,581
$
7,416
Accounts receivable, net
3,129
3,706
Unbilled accounts receivable
1,495
2,366
Inventories, net
4,508
4,076
Prepaid expenses and other current assets
1,038
1,760
Total current assets
23,751
19,324
Property and equipment, net
12,622
12,624
Debt financing costs, net
902
817
Intangible assets, net
6,647
6,618
Notes receivable — related parties
100
101
TOTAL ASSETS
$
44,022
$
39,484
LIABILITIES, CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable
$
2,748
$
1,516
Accrued expenses and other current liabilities
3,374
4,293
Bank lines of credit
3,873
2,501
Long-term debt, current portion
457
248
Capital lease obligations, current portion
1,029
967
Preferred stock warrant liability
560
603
Recall liability, current portion
1,004
887
Deferred contract revenues, current portion
2,112
2,351
Total current liabilities
15,157
13,366
Long-term interest payable
11,590
12,006
Long-term debt, net of current portion
36,956
37,272
Convertible notes
9,399
9,437
Subordinated note
13,000
16,445
Subordinated note embedded derivative liability
7,367
6,338
Capital lease obligations, net of current portion
1,652
1,465
Recall liability, net of current portion
3,828
3,665
Deferred contract revenues, net of current portion
3,688
3,625
Total liabilities
102,637
103,619
Convertible preferred stock, par value of $0.001 per share; 65,716,300 shares authorized; 36,034,900 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma (unaudited)
57,261
57,261
Redeemable common stock, par value of $.001 per share, 3,514,252 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro
forma (unaudited)
3,224
3,224
Stockholders' deficit:
Common stock, par value of $0.001 per share, 115,000,000 shares authorized; 18,999,892 and 19,032,142 shares issued and outstanding as of
September 30, 2013 and December 31, 2013, actual; 58,581,294 shares issued and outstanding as of December 31, 2013, pro forma (unaudited)
19
19
Additional paid-in capital
(26,696
)
(30,118
)
Accumulated deficit
(92,423
)
(94,521
)
Total stockholders' deficit
(119,100
)
(124,620
)
$
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
$
44,022
$
39,484
See accompanying notes to condensed financial statements.
F-40
Table of Contents
CORIUM INTERNATIONAL, INC.
Condensed Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended
December 31,
2012
2013
Revenues:
Product revenues
$
9,972
$
8,100
Contract research and development revenues
2,588
2,064
Other revenues
64
304
Total revenues
12,624
10,468
Costs and operating expenses:
Cost of product revenues
6,233
5,229
Cost of contract research and development revenues
3,122
3,537
Research and development expenses
1,052
861
General and administrative expenses
1,792
1,810
Amortization of intangible assets
131
130
Gain on disposal and sale and leaseback of equipment
(43
)
(37
)
Total costs and operating expenses
12,287
11,530
Income (loss) from operations
337
(1,062
)
Interest income
3
2
Interest expense
(1,773
)
(2,024
)
Change in fair value of preferred stock warrant liability
—
(43
)
Change in fair value of subordinated note embedded derivative liability
—
1,029
Loss before income taxes
(1,433
)
(2,098
)
Income tax benefit (expense)
—
—
Net loss and comprehensive loss
$
(1,433
)
$
(2,098
)
Net loss attributable to common stockholders, basic and diluted
(1,433
)
(2,098
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.06
)
$
(0.09
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,341,554
22,521,505
Pro forma net loss per share attributable to common stockholders, basic and diluted
$
Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted
See accompanying notes to condensed financial statements.
F-41
Table of Contents
CORIUM INTERNATIONAL, INC.
Condensed Statements of Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit
(Unaudited)
(In thousands, except share
and per share data)
Convertible Preferred
Stock
Redeemable
Common Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Deficit
Shares
Amount
Shares
Amount
Shares
Amount
Balance — September 30, 2013
36,034,900
$
57,261
3,514,252
$
3,224
18,999,892
$
19
$
(26,696
)
$
(92,423
)
$
(119,100
)
Decrease in equity associated with modification of subordinated debt
—
—
—
—
—
—
(3,485
)
—
(3,485
)
Issuance of common stock upon exercise of stock options
—
—
—
—
32,250
—
7
—
7
Stock-based compensation expense
—
—
—
—
—
—
56
—
56
Net loss and comprehensive loss
—
—
—
—
—
—
—
(2,098
)
(2,098
)
Balance — December 31, 2013
36,034,900
$
57,261
3,514,252
$
3,224
19,032,142
$
19
$
(30,118
)
$
(94,521
)
$
(124,620
)
See accompanying notes to condensed financial statements.
F-42
Table of Contents
CORIUM INTERNATIONAL, INC.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended December 31,
2012
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss
$
(1,433
)
$
(2,098
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment
498
434
Gain on disposal and sale and leaseback of equipment
(43
)
(37
)
Amortization of premium on modification of subordinated note
—
(40
)
Change in fair value of preferred stock warrant liability
—
43
Change in fair value of subordinated debt embedded derivative liability
—
(1,029
)
Amortization of intangible assets
131
130
Noncash amortized debt issue costs on long-term debt
81
85
Noncash amortized debt discount
39
53
Stock compensation expense
172
56
Changes in operating assets and liabilities:
Accounts receivable, net
(2,397
)
(577
)
Unbilled accounts receivable
(78
)
(872
)
Inventories
(260
)
433
Prepaid expenses and other current assets
55
(722
)
Accounts payable
(509
)
(129
)
Accrued expenses and other liabilities
(102
)
1,278
Deferred contract revenues
662
177
Recall liability
0
(280
)
Long-term interest payable
416
416
Net cash used by operating activities
(2,768
)
(2,679
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(3,353
)
(1,540
)
Proceeds from sale of equipment
2
—
Increase in notes receivable — related parties
—
(1
)
Payments for patents and licensing rights
(135
)
(100
)
Net cash used in investing activities
(3,486
)
(1,641
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
6,600
—
Payment of transaction costs on issuance of long-term debt
(65
)
—
Principal payments on long-term debt
(282
)
(225
)
Principal payments on capital lease obligations
(149
)
(256
)
Borrowings on bank lines of credit
1,000
534
Payments on bank lines of credit
(1,072
)
(1,905
)
Proceeds from exercise of stock options
3
7
Net cash provided (used) by financing activities
6,035
(1,845
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(219
)
(6,165
)
CASH AND CASH EQUIVALENTS — Beginning of period
12,245
13,581
CASH AND CASH EQUIVALENTS — End of period
$
12,026
$
7,416
See accompanying notes to condensed financial statements.
F-43
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements
1. Summary of Significant Accounting Policies
Unaudited Interim Condensed Financial Statements
The interim balance sheet as of December 31, 2013 and the statements of operations and comprehensive loss and cash flows for the three months
ended December 31, 2012 and 2013 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position as of December 31, 2013 and its results of
operations and cash flows for the three months ended December 31, 2012 and 2013. The financial data and the other financial information contained in these notes to the financial statements
related to the three month periods are also unaudited. The results of operations for the three months ended December 31, 2013 are not necessarily indicative of the results to be expected for
the year ending September 30, 2014 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company's audited financial statements
included elsewhere in this prospectus.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and negative cash flows from
operations. The Company has recorded net losses of $1.4 million and $2.1 million for the three months ended December 31, 2012 and 2013, respectively. At December 31, 2013,
the Company had an accumulated deficit of $94.5 million and cash and cash equivalents of $7.4 million. The Company's management believes that there is significant uncertainty about its
ability to operate as a going concern. The Company's ability to operate as a going concern is dependent on the Company's ability to raise additional capital which may not be available to the Company
on acceptable terms, or at all. The Company is considering various plans to raise additional financing. The failure to obtain sufficient funds on acceptable terms when needed could have a material
adverse effect on the Company's business, results of operations, future cash flows and financial condition.
Use of Estimates
Estimates and assumptions are required to be used by management in the preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements
and the reported amounts of operating revenues and operating expenses during the reporting period. Those estimates and assumptions affect revenue recognition and deferred revenues, impairment of
long-lived assets, determination of fair value of stock-based awards and other debt and equity related instruments, and accounting for income taxes. As future events and their effects cannot be
determined with precision, actual results could differ from those estimates.
Unaudited Pro Forma Stockholders' Deficit
The pro forma stockholders' deficit assumes the following upon the effectiveness of the Company's registration statement on Form S-1 in
connection with a qualifying initial public offering ("IPO"):
•
all of the outstanding shares of convertible preferred stock will
automatically convert into               shares of common stock,
•
the convertible notes held by Essex Woodlands
and other investors will
automatically convert into 20,569,231 shares of the Company's common stock (see Note 4),
•
the subordinated note will automatically convert into 34,210,182 shares of
the Company's common stock (see Note 4),
•
the Company will repurchase 10,885,884 shares of the Company's common stock
for an aggregate repurchase price of $5.2 million from two of the Company's founders.
F-44
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
The
Company calculates its basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The
Company's basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common
stock outstanding for the period. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the
period. For purposes of the diluted calculation, convertible preferred stock, options to purchase common stock and common stock warrants are considered common stock equivalents but have been excluded
from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.
In
contemplation of an initial public offering, the Company has presented the unaudited pro forma basic and diluted net loss per share attributable to common stockholders, which has been computed to
give effect to the conversion of the convertible preferred stock into shares of common stock and the conversion of preferred stock
warrants to common stock warrants as of the beginning of the respective period. In addition, as a result of the recapitalization as discussed in Note 4, the unaudited pro forma basic and
diluted net loss per share attributable to common stockholders for the three months ended December 31, 2013 has been computed to give effect to (i) the conversion of the Convertible
Notes into 20,569,231 shares of common stock, (ii) the conversion of the Subordinate Note into 34,210,182 shares of common stock, and (iii) the repurchase of 10,885,884 shares from two
of the Company's founders as if each of these events occurred as of October 1, 2013.
The
shares of common stock issuable and the proceeds expected to be received in the IPO are excluded from this pro forma financial information.
Concentration of Credit Risk
Four partners accounted for 98% and 97% of the Company's revenues for the three months ended December 31, 2012 and 2013. These same partners
accounted for 100% and 93% of accounts receivable as of September 30, 2013 and December 31, 2013.
Revenue Recognition
The Company generates revenues from agreements for the development and commercialization of its products. The terms of the agreements may include
nonrefundable upfront payments, partial or complete reimbursement of research and development costs, milestone payments, product sales and royalties and profit sharing on product sales derived from
partner agreements. The Company recognizes revenues when the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred; the price is fixed or determinable;
and collectability is reasonably assured.
Revenue
related to multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. This
determination is generally based on whether any deliverable has stand-alone value to the partner. This analysis also establishes a selling price hierarchy for determining how to allocate arrangement
consideration to identified units of accounting. The selling price used for each unit of accounting is based on vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. Typically, the Company has not granted licenses to
partners at the beginning of its arrangements and thus there are no delivered items separate from the research and development services provided. As such, upfront payments are recorded as deferred
revenues in the balance sheet and are recognized as contract research and development revenues over the estimated period of performance that is consistent with the terms of the
F-45
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
research
and development obligations contained in the agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement.
Amounts
related to research and development funding are generally recognized as the related services or activities are performed, in accordance with the contract terms. To the extent that agreements
specify services are to be performed on a cost-plus basis, revenues are recognized as services are rendered. Such work is generally billed on a monthly basis for time incurred at specified rates in
the agreements. To the extent that agreements specify services to be performed on a fixed-price basis, revenues are recognized consistent with the pattern of the work performed. Generally, all of the
agreements provide for reimbursement of third-party expenses, and such reimbursable expenses are billed as revenues as incurred.
The
arrangements may include contractual milestones, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events contained in
the Company's arrangements coincide with the progression of the Company's product candidates from research and development, to regulatory approval and through to commercialization. The process of
successfully developing a new product, having it approved from a regulatory perspective and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn
from its partners involve a significant degree of risk to achieve. Research and development milestones in the Company's strategic alliances may include the following types of events: completion of
pre-clinical research and development work, completion of certain development events and initiation of clinical trials. Regulatory milestones may include the following types of events: filing of
regulatory applications with the Food and Drug Administration and approval of the regulatory applications by the Food and Drug Administration. Commercialization milestones may include product launch.
The Company recognizes milestone payments in its entirety in the period in which the milestone is achieved.
Upon
commercialization, revenues are generated from product sales, royalties and profit sharing. Product sales are generally recognized as products are shipped and title and risk of loss pass to the
partner. Royalties and profit sharing are generally recognized when the Company's partners sell the product to their customers and are based on a percentage of the Company's partners' gross sales or
net profits for products subject to our agreements. Royalties and profit sharing totaled $2.0 million and $1.9 million for the three months ended December 31, 2012 and 2013.
Other
revenues consists primarily of income derived from the Company's arrangements with its partners, whereby a portion of the revenues received under these agreements relates to rental income from
embedded leases associated with these relationships, as well as revenues associated with licenses granted to a third party for intellectual property related to thin film dressings.
2. Fair Value Measurements
Except as noted below, the carrying values of the Company's financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the
short period of time to maturity or repayment.
F-46
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
2. Fair Value Measurements (Continued)
The
Company's financial instruments that are measured at fair value on a recurring basis as of September 30, 2013 and as of December 31, 2013, by level within the fair value hierarchy,
are as follows (in thousands):
As of September 30, 2013
Level I
Level II
Level III
Total
Preferred stock warrant liability
$
—
$
—
$
560
$
560
Subordinated note embedded derivative liability
—
—
7,367
7,367
Total financial liabilities
$
—
$
—
$
7,927
$
7,927
As of December 31, 2013
Level I
Level II
Level III
Total
Preferred stock warrant liability
$
—
$
—
$
603
$
603
Subordinated note embedded derivative liability
—
—
6,338
6,338
Total financial liabilities
$
—
$
—
$
6,941
$
6,941
The Company's Level III liabilities consist of a preferred stock warrant liability (see Note 6) and subordinated note embedded derivative liability
(Note 4). The following table sets forth a summary of the changes in the fair value of the Company's Level III financial liabilities, which are measured on a recurring basis (in
thousands):
Balance as of September 30, 2013
$
7,927
Change in fair value of preferred stock warrants
43
Change in fair value of subordinated note embedded derivative liability
(1,029
)
Balance as of December 31, 2013
$
6,941
The following financial instruments have carrying values which differ from their fair value as estimated by the Company based on market quotes for instruments
with similar terms and remaining maturities (Level III valuation technique) (in thousands):
As of September 30, 2013
Carrying
Value
Fair
Value
Difference
Long-term debt
$
37,413
$
37,413
$
—
Convertible notes
9,399
14,316
4,917
Subordinated note
13,000
9,508
(3,492
)
Total
$
59,812
$
61,237
$
1,425
F-47
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
2. Fair Value Measurements (Continued)
As of December 31, 2013
Carrying
Value
Fair
Value
Difference
Long-term debt
$
37,520
$
37,520
$
—
Convertible notes
9,437
14,604
5,167
Subordinated note
16,445
16,445
—
Total
$
63,402
$
68,569
$
5,167
3. Inventories
Inventories consist of the following (in thousands):
As of
September 30,
2013
As of
December 31,
2013
Raw materials
$
2,410
$
2,185
Work in process
1,546
1,384
Finished goods
667
675
Total inventories, cost
4,623
4,244
Less inventory reserves
(115
)
(168
)
Total inventories, net
$
4,508
$
4,076
4. Debt
The Company's outstanding debt as of September 30, 2013 and December 31, 2013 consist of a bank line of credit, amounts outstanding under a term loan agreement classified as long-term
debt, convertible notes and a subordinated note as follows (in thousands):
As of
September 30,
2013
As of
December 31,
2013
Bank line of credit
$
3,873
$
2,501
Long-term debt
37,413
37,520
Convertible notes
9,399
9,437
Subordinated note
13,000
16,445
Total
63,685
65,903
Less current portion, consisting of bank line of credit and long-term debt
4,330
2,749
Long-term portion
$
59,355
$
63,154
Bank Line of Credit
The Company entered into a line of credit on August 31, 2012 which provides for borrowings up to $6.0 million, expires on
August 31, 2014, and is collateralized by a first security interest in cash, accounts receivable, and inventory, as well as a secondary interest in all other assets of the Company. Advances
under the line of credit are based on 80% of eligible accounts receivable. The line of credit bears interest at 0.25%, plus the bank's prime rate (an effective rate of 4.25% as of September 30,
2013 and
F-48
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
4. Debt (Continued)
December 31,
2013), and provides for a minimum monthly interest charge of $5,000. In addition, the line of credit required a $60,000 facility fee which was paid in August 2013. The line of
credit contains a minimum monthly liquidity covenant of $2.0 million of net cash on deposit with the commercial bank. The Company was in compliance with such covenant as of September 30,
2013 and December 31, 2013.
Long-term Debt
Long-term debt was as follows (in thousands):
As of
September 30,
2013
As of
December 31,
2013
Term loan agreement expiring June 30, 2017. See terms of the agreement below. Less discount of $103 and $96 as of September 30, 2013 and for the
three months ended December 31, 2013
$
36,293
$
36,625
Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $3 at an interest rate of 7% and is due
April 2015
124
117
Notes payable to lessor for tenant improvements. The note calls for monthly payments of principal and interest of $6 at an interest rate of 7% and is due
November 2024
575
567
Notes payable to finance Company insurance premiums. The note calls for monthly payments of principal and interest of $71 at an interest rate of 2.192% and
is due March 2014
421
211
Total
37,413
37,520
Less current portion
457
248
Long-term portion
$
36,956
$
37,272
On July 13, 2012, the Company completed a $35.0 million term loan agreement with a financial investment fund. In August 2012 and December 2012, the
Company drew down $29.0 million and $6.0 million under this agreement. The agreement requires interest to be paid quarterly at a simple annual rate of 15%, and that all outstanding
principal be repaid in four equal quarterly payments beginning September 30, 2016. The facility also contains a provision whereby the Company can choose to defer cash payment of 3.5% on the
original outstanding principal from the first 11 quarterly interest payments by converting that portion of the interest otherwise due into additional notes under the agreement. As of
September 30, 2013 and December 31, 2013, the Company has converted $1.2 million and $1.6 million of interest into additional notes (payment-in-kind notes). Amounts
outstanding under the term loan agreement are collateralized by all of the Company's assets and the agreement contains a 1% fee on all draws and provides for a prepayment penalty on the outstanding
principal if the Company chooses to repay principal prior to maturity, or upon other specified events, including a change of control. The term loan agreement provides for financial covenants for
minimum revenues and minimum liquidity, of which the Company was in compliance as of September 30, 2013 and December 31, 2013.
F-49
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
4. Debt (Continued)
Convertible Notes
In 2008 and 2009, the Company issued convertible bridge notes (the "Convertible Notes") and warrant purchase agreements to several of the existing
Series C stock investors, whereby the Company raised a total of $20.0 million. As originally issued, the Convertible Notes accrued interest at 10% per year and matures on the earliest of
July 31, 2009, the consummation of a significant sale of assets of the Company outside the normal course of business, or upon an uncured event of default. Subsequently, the maturities of the
Convertible Notes were initially extended to October 31, 2009, after which they became due.               Interest has not been paid on the Convertible Notes since
inception and is therefore,
presented as long-term accrued interest.
The
Convertible Notes are convertible into preferred stock of the Company. Upon completion of the Company's next preferred stock equity financing, the Convertible Notes will convert automatically into
the series of preferred stock issued in that financing, at a conversion price equal to the price per share for such financing. The Convertible Notes are secured by all assets of the Company, with such
security interest being subordinated to the security interest granted by the Company to its commercial bank and the $35 million term loan agreement. Pursuant to an intercreditor agreement the
Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity.
The
Convertible Notes also provide for an amendment of the voting agreement between the Company and the majority of its stockholders, pursuant to which the major investor has the right to increase the
maximum size of the board of directors to 11 and the major investor also has the right to appoint up to 6 of the directors. As of December 31, 2013 the major investor had not exercised either
of these rights.
In
connection with the Convertible Notes, the Company also issued common stock warrants exercisable for a number of shares equal to 60% of the principal amount of the Convertible Notes, divided by the
conversion price of the Convertible Notes, which is, initially, the original issue price of the Series C preferred stock. The warrants are only exercisable following conversion of the
Convertible Notes into preferred stock and will be exercisable for shares of common stock of the Company.
Subordinated Note
In 2009, the Company issued a subordinated note (the "Subordinated Note") to one of the existing Series C preferred stock investors raising a
total of $13.0 million. The Subordinated Note accrues simple interest at 5% per year and had an original maturity of the earliest of March 31, 2010, the consummation of a significant
sale of assets of the Company outside the normal course of business, or upon an uncured event of default. In connection with the closing of the term loan agreement during the year ended
September 30, 2012, the maturity of the Subordinated Note was extended to July 1, 2017, and, as a result, the Subordinated Note is classified as a long-term obligation as of
September 30, 2013 and December 31, 2013.
Interest has not been paid on the Subordinated Note since inception and is therefore, presented as long-term accrued interest.
The
Subordinated Note is secured by all assets of the Company, with such security interest subordinated to the security interest granted by the Company to both its commercial bank and the term loan
agreement. Pursuant to an intercreditor agreement the Company entered into in July 2012, the Company is not permitted to pay interest on these notes until maturity.
If
the Company consummates a merger of the Company or a sale of all or substantially all of the Company's assets, or a significant asset sale prior to the full repayment of the Subordinated Note,
then, at the written
F-50
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
4. Debt (Continued)
election
of the subordinated note holder, the holder of the Subordinated Note will be entitled to be repaid the entire outstanding balance under the Subordinated Note plus an additional amount equal
to the outstanding principal under the Subordinated Note, plus all accrued interest. The Company has determined that this feature is an embedded derivative requiring bifurcation and separate
accounting. The fair value of this embedded derivative liability was $7.4 million and $6.3 million as of September 30, 2013 and December 31, 2013. The fair value of the
embedded derivative was measured using a with and without valuation methodology. The fair value is primarily driven by the assessment of the probability and timing of scenarios which would trigger the
payment of the additional amount equal to the outstanding principal totaling $13.0 million under the Subordinated Note. The change in fair value of was recorded to change in fair value of
Subordinated Note embedded derivative liability.
We
determined that the fair value of the Subordinated Note embedded derivative feature had decreased by $1.0 million during the three months ended December 31, 2013, primarily due to the
increased likelihood of an IPO which would thereby decrease the likelihood of a qualifying transaction that would trigger payment of the additional amount which results in reducing the value of the
embedded derivative feature. Accordingly, we recorded a net decrease in fair value of Subordinated Note embedded derivative liability of $1.0 million for the three months ended
December 31, 2013.
As
part of the recapitalization described below, in December 2013 the subordinate note was modified to provide that in the event of a qualifying IPO or equity financing, the note will automatically
convert into 34.2 million shares of common stock or the equivalent amount of preferred stock. As this represents a substantial modification of the debt, it is accounted for as an
extinguishment. Accordingly, the book value of the debt prior to the conversion was removed from the financial statements and the fair value of the debt after the modification, including the value of
the conversion feature, of $16.5 million was recorded. As the holder of the subordinate debt controls the majority of our equity and can appoint the majority of our board, the modification of
the debt is considered a transaction with owners. Accordingly the difference between the book value of the debt prior to the modification and the fair value of the debt after modification and was
recorded as a $3.5 million reduction in additional paid in capital.
Recapitalization
In December 2013, the Company entered into an amendment and conversion agreement with Essex Woodlands pursuant to which the Company and Essex
Woodlands (i) amended the Convertible Notes held by Essex Woodlands and other investors to provide that they will automatically convert either into 20,569,231 shares of the Company's common
stock immediately prior to the closing of an initial public offering of the Company's common stock or into 20,569,231 shares of the Company's Series C preferred stock immediately prior to the
first closing of a qualified equity financing that occurs prior to the closing of an initial public offering of the Company's common stock and the Convertible Notes will be terminated;
(ii) amended the terms of the Subordinated Note to provide that it will automatically convert either into 34,210,182 shares of the Company's common stock immediately prior to the closing of an
initial public offering of the Company's common stock or into 34,210,182 shares of a new series of the Company's preferred stock (with identical rights, preferences and privileges as the Company's
Series C preferred stock, but with a liquidation preference of one times its original issue price) immediately prior to the first closing of a qualified equity financing that occurs prior to
the closing of an initial public offering of the Company's common stock and the Subordinated Note will be terminated; and (iii) requires Essex Woodlands to effect the automatic conversion of
all outstanding shares of the Company's preferred stock in connection with the completion of an initial public offering of the Company's common stock.
F-51
Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
4. Debt (Continued)
Simultaneously,
the Company also entered into a repurchase agreement pursuant to which the Company agreed to repurchase 10,885,884 shares of the Company's common stock for an aggregate repurchase
price of $5.2 million from two of the Company's founders. These repurchases will occur immediately prior to the earlier of the closing of an initial public offering of the Company's common
stock and the first closing of a qualified equity financing, and these repurchases will satisfy in full all of the Company's remaining obligations under the repurchase agreements which are discussed
in Note 7.
5. Collaboration and Partner Arrangements
The Company has recognized the following revenues from its collaboration and partner agreements during the three months ended December 31, 2012 and 2013 (in thousands):
Three Months Ended December 31,
2012
2013
P&G
$
2,729
$
2,952
Teva
4,421
3,703
Actavis/Par
3,955
3,179
Agile
1,315
365
Other
204
269
Total revenues
$
12,624
$
10,468
6. Warrants
The Company issued warrants to purchase shares of the Company's stock as part of several transactions from 2008 through 2013. The warrants have been recorded as either equity instruments or liability
instruments based on the terms of the warrants.
Preferred Stock Warrants
The Company issued warrants to purchase Series C preferred stock, which comprise the only warrants to purchase preferred stock issued by the
Company as of December 31, 2013.
All
of the Series C preferred stock warrants are exercisable for a period of five years from issuance except certain warrants to purchase 163,522 shares of Series C preferred stock that
expire upon the earlier of five years and the closing of an initial public offering. The warrants are exercisable in cash or through a cashless exercise provision. Under the cashless exercise
provision, the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the Series C preferred
stock at the time of exercise of the warrant after deducting the aggregate exercise price. In the event that all outstanding shares of the Series C convertible preferred stock are converted
into common stock, the warrants will be exercisable for the same number of shares of common stock.
As
of September 30, 2013 and December 31, 2013, warrants to purchase 1,739,992 and 1,707,287 shares of Series C preferred stock were outstanding with a weighted average exercise
price of $0.90 per share. Of this amount, warrants to purchase 1,380,241 shares of Series C preferred stock contain antidilution protection. Therefore, the Company evaluated these warrants as
derivative instruments, and accordingly recorded the warrants as liabilities at fair value at the time of issuance, with the fair value then adjusted at each subsequent balance sheet date. The Company
will continue to adjust the preferred stock warrant liabilities for changes in the fair value of the warrants until the earlier of (i) the exercise of the
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
6. Warrants (Continued)
warrants,
(ii) the conversion of the underlying preferred stock into common stock, at which time, the liability will be reclassified to stockholders' equity, and (iii) the expiration of
the warrants.
The
fair value of the outstanding convertible preferred stock warrants containing antidilution protection were remeasured as of September 30, 2013 and December 31, 2013 using the
Probability-Weighted Expected Return Model. We use a number of assumptions to estimate the fair value including the likelihood of various scenarios, the expected volatility and the fair value of the
underlying stock under each scenario. These assumptions are:
As of September 30,
2013
As of December 31,
2013
Remaining contractual term (in years)
5.07 - 8.24
4.82 - 7.99
Risk-free interest rate
1.39 - 2.02%
1.75 - 2.45%
Expected volatility
68 - 77%
67 - 72%
Expected dividend rate
0%
0%
The fair value of these warrants totaled $0.6 million and $0.6 million as of September 30, 2013 and December 31, 2013.
Common Stock Warrants
As of September 30, 2013 and December 31, 2013, warrants to purchase 13,075,643 shares of common stock were outstanding with a weighted
average exercise price of $0.19 per share. All of the common stock warrants are exercisable for a period of five years from issuance and the closing of an initial public offering of common stock. The
fair value of these warrants was recorded in stockholders' deficit upon issuance.
7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit
Convertible Preferred Stock
Convertible preferred stock as of September 30, 2013 and December 31, 2013 consists of the following (in thousands, except for share and
per share data):
Shares
Authorized
Original
Issue Price
Shares Issued and
Outstanding
Aggregate
Liquidation Amount
Series A
1,114,100
$
0.220
1,114,066
$
490
Series B
7,602,200
0.875
7,602,132
6,652
Series C
57,000,000
0.917
27,318,702
50,119
Balance as of September 30, 2013 and December 31, 2013
65,716,300
36,034,900
$
57,261
Voting Rights
— The Series A, B, and C preferred stockholders have a right to the number of votes equal to the number of shares of common stock issuable upon
conversion of the preferred stock, except as
otherwise required by law. The Series C stockholders have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions. In
addition, all preferred stockholders, as a class, have protective provisions that require the Company to obtain their consent, by majority vote, before undertaking certain actions.
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)
Dividends
— The Series A, B, and C preferred stockholders are entitled to receive noncumulative dividends, if and when declared by the board of directors
prior and in preference to any dividend on common stock, at the rate of 8% of the original issue price.
Conversion
— Each share of preferred stock may be converted, at the option of the holder, into such number of fully paid and nonassessable shares of common stock as
is determined by dividing the original issue price for the relevant series of preferred stock by the then-applicable conversion price in effect at the time of conversion. The current conversion ratio
for all outstanding shares of preferred stock is one-for-one. Each share of preferred stock will automatically convert to common stock upon the consent of holders of at least 67% of the shares of
preferred stock outstanding, or the closing of an underwritten registered public offering of shares of common stock that reflects a value of the Company not less than $3.68 per share and results in
gross proceeds of at least $50.0 million.
Liquidation
— In the event of a liquidation, dissolution, or winding up of the Company, the Series C preferred stockholders are entitled to a preference
payment prior to any distribution of assets or surplus funds of the Company to the Series A and B preferred stockholders or to the common stockholders. The liquidation preference payments to
the Series C preferred stockholders will be two times the original issuance price of the Series C preferred stock, plus any accrued but unpaid dividends. Upon completion of the
preference payment to the Series C preferred stockholders, the Series A and B preferred stockholders are entitled to share equally in preference payments until the Series B
preferred stockholders receive one times the original issuance price of the Series B preferred stock; thereafter, only the Series A preferred stockholders receive preference payments
until they have received a cumulative amount of two times the original issuance price of the Series A preferred stock. All of the foregoing preferred stock preferences must be paid prior to any
distribution of any assets or surplus funds of the Company to the common stockholders. The Company classifies the convertible preferred stock outside of stockholders' deficit and records it at maximum
liquidation value as the shares contain liquidation features that are not solely within its control.
Participation
— In the event of a liquidation, dissolution, or winding up of the Company, and only after all of the Series A, B, and C preferred stockholders
have received all of their preference payments, any remaining assets or surplus funds of the Company will be distributed ratably to the common stockholders and Series B preferred stockholders
as if the Series B preferred stock had all been converted into common, but only to the extent that Series B stockholders will be entitled to receive a maximum of one times the original
issuance price of the Series B preferred stock from such distribution.
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
7. Convertible Preferred Stock, Redeemable Common Stock and Stockholders' Deficit (Continued)
Common Stock
The Company was authorized to issue up to 115,000,000 shares of common stock as of September 30, 2013 and December 31, 2013 at par value
of $0.001 per share. The Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows:
As of
September 30,
2013
As of
December 31,
2013
Issuances under stock option plans
17,996,634
17,964,384
Conversion of convertible preferred stock
36,034,900
36,034,900
Issuances upon exercise of convertible preferred stock warrants
1,739,992
1,707,287
Issuances upon exercise of common stock warrants
13,075,643
13,075,643
68,847,169
68,782,214
Repurchases of Common Stock from Founders
— In connection with the Series C financing the Company, in accordance with specific stock repurchase agreements
approved by the board of directors, purchased from the two founders an aggregate of 2,180,313 shares of common stock at a purchase price of $0.9173 per share. The stock repurchase agreements also
provide for the Company to repurchase an additional total of 2,180,313 shares of common stock held by each of the two founders at a price of $0.9173 per share, in four separate closings, at six-month
intervals of 408,809, 408,809, 545,078, and 817,617 shares from each founder. These agreements were amended in March 2008 to suspend the Company's obligation to repurchase these shares if, in the
discretion of the Company's board of directors, any such repurchase would result in a material adverse effect on the Company's financial condition. As these shares are conditionally redeemable, they
are classified outside of stockholders' deficit.
As
of September 30, 2013 and December 31, 2013, the Company has a remaining agreement to repurchase 1,333,939 from one founder and 2,180,313 from the other founder, but such repurchase
is contingent on
approval by the board of directors. As discussed in Note 4, in December 2013, the Company entered into another agreement which would include the satisfaction in full of all of the Company's
remaining obligations under these repurchase agreements upon the earlier of the closing of an initial public offering of the Company's common stock and the first closing of a qualified equity
financing.
8. Stock-Based Compensation
Equity Incentive Plan
As of September 30, 2013 and December 31, 2013, the Company has two stock option plans, one sponsored by the Company, or the Corium Plan
and the stock option plan of StrataGent, Inc., or the StrataGent Plan. StrataGent, Inc. was acquired by the Company as a wholly owned subsidiary on September 20, 2007. The
unexpired, unexercised options outstanding for those employees of StrataGent who remained Company employees after the merger was effected were assumed by the Company. Each StrataGent option became
exercisable into whole shares of Corium stock based on an agreed exchange ratio and per share exercise price such that the total value of the option grant did not change. The Company elected to make
no further grants under the StrataGent Plan; however its terms continue to govern all options issued under that plan. No additional shares available for grant were assumed by the Company, and
F-55
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
8. Stock-Based Compensation (Continued)
any
options that were returned to the pool subsequent to the merger were canceled and were not made available for future grants. This wholly owned subsidiary was dissolved during 2008.
The
Corium Plan consists of the 2002 stock option plan that expired in 2012 and the 2012 equity incentive plan which was adopted in November 2012. The exercise price of each option issued under the
Corium Plan is no less than the fair value of the Company's stock on the date of the grant as determined by the board of directors. The maximum term of the options is 10 years and the maximum
vesting period is 4 years.
A
summary of activity under the Corium Plan during the three months ended December 31, 2013 is as follows:
Shares
Available
for Grant
Stock
Options
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
(In thousands)
Balance — September 30, 2013
2,508,950
15,441,631
$
0.22
7.22
$
1,287
Additional shares authorized
—
—
Granted
—
—
Exercised
—
(32,250
)
$
0.22
Forfeited
1,068
(1,068
)
$
0.22
Cancelled
—
—
Balance — December 31, 2013
2,510,018
15,408,313
$
0.22
7.37
$
2,928
Employee stock-based compensation expense for the three months ended December 31, 2012 and 2013 is classified in the statements of operations as follows (in thousands):
Three months ended December 31,
2012
2013
Cost of product revenues
$
18
$
6
Cost of contract research and development revenues
11
4
Research and development
20
7
General and administrative
123
39
Total stock-based compensation
$
172
$
56
As of December 31, 2013, there was a total of $0.6 million of unrecognized employee compensation cost, net of estimated forfeitures, related to non-vested stock
option awards, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately 2.1 years.
9. Product Recall Liability
In fiscal 2008 and fiscal 2010, Actavis issued two voluntary recalls of certain lots and strengths of Fentanyl TDS manufactured by the Company and sold and distributed by Actavis in the United States.
The Company and Actavis negotiated financial settlements for these two recalls, and the Company accrued amounts related to these settlements in fiscal 2009 and 2011. Such recall liabilities were
subsequently reduced through various mechanisms per the terms of the settlement agreements.
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
9. Product Recall Liability (Continued)
In October 2012, the Company reached a revised settlement related to the First and Second Recalls which provides for a total and combined remaining liability of $5.0 million. The revised
liability will be repaid through quarterly payments in arrears based on a percentage of the average of the total net revenues recorded by the
Company related to Fentanyl TDS. These payments will be paid to Actavis starting in July 1, 2013 and continuing through April 1, 2017. To the extent that the revised settlement liability
is not repaid as of April 1, 2017, the remaining liability, if any, will be converted into the most recent form of capital stock issued by the Company in connection with a financing, at the
price per share of that financing. The revised liability does not accrue interest.
The
following table summarizes the changes to the product recall liability (in thousands):
Three months ended
December 31, 2013
Balance at September 30, 2013
$
4,832
Payment of settlement liability
(280
)
Balance at December 31, 2013
$
4,552
10. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of the Company's basic and diluted net loss per share attributable to common stockholders during the three months ended December 31, 2012 and 2013
(in thousands, except share and per share data):
Three months ended
December 31,
2012
2013
Net loss attributable to common stockholders, basic and diluted
$
(1,433
)
$
(2,098
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,341,554
22,521,505
Net loss attributable to common stockholders, basic and diluted
$
(0.06
)
$
(0.09
)
The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stockholders for the
periods presented because including them would have been antidilutive:
Three months ended
December 31,
2012
2013
Convertible preferred stock
36,034,900
36,034,900
Stock options to purchase common stock
18,032,134
17,964,384
Common stock warrants
12,993,643
13,075,643
Preferred stock warrants
1,739,992
1,707,287
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CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
10. Net Loss and Unaudited Pro Forma Net Loss per Share Attributable to Common Stockholders (Continued)
The following table sets forth the computation of the Company's unaudited pro forma basic and diluted net loss per share attributable to common stockholders after giving effect
to the recapitalization, described in Note 4 and the conversion of preferred stock into common stock as though the conversion had occurred at the beginning of the three months ended
December 31, 2013 (in thousands, except share and per share data):
Three months ended
December 31, 2013
(Unaudited)
Net loss attributable to common stockholders, basic and diluted
$
(2,098
)
Pro forma adjustments to reflect:
Change in fair value of preferred stock warrant liability
43
Interest expense on convertible notes
252
Interest expense on subordinated notes
164
Pro forma net loss per share attributable to common stockholders, basic and diluted
$
(1,639
)
Weighted average shares used in computing net loss per share attributable to common stockholders, basic and diluted
22,521,505
Pro forma adjustments to reflect:
Conversion of convertible preferred stock
36,034,900
Conversion of convertible notes
20,569,231
Conversion of subordinated notes
34,210,182
Repurchase of common stock from founders
(10,885,884
)
Weighted average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted
102,449,934
Pro forma net loss per share attributable to common stockholders, basic and diluted
$
(0.02
)
11. Segment and Enterprise-Wide Information
The Company's chief operating decision maker is its chief executive officer. The chief executive officer reviews its operating results on an aggregate basis for purposes of allocating resources and
evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, or operating results for levels or components.
Accordingly, the Company has a single reporting segment and operating unit structure.
All
of the Company's revenues are derived from partners located in the United States and all long-lived assets are located in the United States.
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Table of Contents
CORIUM INTERNATIONAL, INC.
Notes to the Condensed Financial Statements (Continued)
12. Subsequent Events
The Company has evaluated subsequent events through March 3, 2014, the date the financial statements were available to be issued.
In
January 2014, the Company's board of directors and stockholders approved an amendment to the 2012 Equity Incentive Plan, whereby the number of shares reserved for issuance under the Plan was
increased by 2,750,000 shares.
In
January 2014, the Company's board of directors approved the grant of stock options, under the Company's 2012 Equity Incentive Plan, totaling 400,000 shares to the non-employee directors of
the Company.
In
January 2014, the Compensation Committee of the board of directors approved the grant of stock options, under the Company's 2012 Equity Incentive Plan, totaling 4,318,000 shares to various
employees.
* * * **
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Table of Contents
Shares
Corium International, Inc.
Common Stock
Preliminary Prospectus
Joint Book-Running Managers
Jefferies
Leerink Partners
Co-Managers
Needham & Company
FBR
, 2014
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.    Other Expenses of Issuance and Distribution
The following table sets forth all expenses to be paid by the Registrant, other than estimated underwriting discounts and commissions, in connection
with our initial public offering. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee:
SEC registration fee
$
6,440
FINRA filing fee
8,000
NASDAQ Global Market listing fee
*
Printing and engraving
*
Legal fees and expenses
*
Accounting fees and expenses
*
Blue sky fees and expenses
*
Transfer agent and registrar fees and expenses
*
Miscellaneous expenses
*
Total
$
*
*
To
be completed by amendment.
Item 14.    Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to
directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit
indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or the Securities Act.
As
permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation that will be in effect at the closing of the offering contains provisions that eliminate
the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
•
any breach of the director's duty of loyalty to the Registrant or its
stockholders;
•
acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
•
under Section 174 of the Delaware General Corporation Law (regarding
unlawful dividends and stock purchases); or
•
any transaction from which the director derived an improper personal
benefit.
As
permitted by the Delaware General Corporation Law, the Registrant's restated bylaws that will be in effect at the closing of our initial public offering, provide
that:
•
the Registrant is required to indemnify its directors and executive officers
to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;
•
the Registrant may indemnify its other employees and agents as set forth in
the Delaware General Corporation Law;
II-1
Table of Contents
•
the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and
•
the rights conferred in the bylaws are not exclusive.
The
Registrant has entered, and intends to continue to enter, into separate indemnification agreements with its directors and executive officers to provide these directors and executive officers
additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and restated bylaws and to provide additional
procedural protections. At present, there is no pending litigation or proceeding involving a director or executive officer of the Registrant regarding which indemnification is sought. Reference is
also made to the underwriting agreement to be filed as Exhibit 1.1 to this registration statement, which provides for the indemnification of executive officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's restated certificate of incorporation, restated bylaws and the indemnification agreements
entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act.
The
Registrant currently carries liability insurance for its directors and officers.
Item 15.    Recent Sales of Unregistered Securities
Since November 1, 2010, the Registrant has issued and sold the following securities:
•
From November 1, 2010 to March 3, 2014, we granted stock
options to purchase an aggregate of 14,750,607 shares of common stock to employees, consultants and directors pursuant to our 2012 Equity Incentive Plan, having exercise prices of $0.28 per share. Of
these options, 40,932 shares have been issued upon exercise thereof for cash consideration in the aggregate amount of $9,005, options to purchase 6,068 shares have been cancelled without being
exercised and options to purchase 14,703,607 shares remain outstanding.
•
From August 2012 through September 2013 we issued warrants to
purchase an aggregate of 1,075,643 shares of common stock at $0.01 to certain lenders and sophisticated accredited investors.
•
From December 2010 through November 2011 we issued warrants to
purchase an aggregate of 617,133 shares of Series C Preferred Stock at $0.9173 and we issued warrants to purchase 54,507 shares of Series C Preferred Stock at $0.73384 to certain lenders
and sophisticated accredited investors.
•
In September 2012, we amended and restated our outstanding secured
convertible promissory notes originally issued in June and November 2008, which we refer to as our convertible notes, and issued to Essex Woodlands a new amended and restated subordinated
secured promissory note with the same aggregate principal amount, which we refer to as the subordinated note. The aggregate principal amount and accrued interest of $18.9 million and
$15.7 million as of September 30, 2013 under the convertible notes and the subordinated note automatically convert into shares of our common stock immediately prior to the closing of
this offering in connection with the recapitalization described in "Related Party Transactions — Recapitalization."
Unless
otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act (or
Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any
public offering or pursuant to benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale
II-2
Table of Contents
in
connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
Item 16.    Exhibits and Financial Statement Schedules
(a)
Exhibits.
The following exhibits are included herein or incorporated herein by reference:
Exhibit
Number
Description of Document
1.1
*
Form of Underwriting Agreement.
3.1
Restated Certificate of Incorporation, as amended to date.
3.2
*
Form of Restated Certificate of Incorporation to be effective in connection with the closing of this offering.
3.3
Bylaws, as currently in effect.
3.4
*
Form of Restated Bylaws to be effective in connection with the closing of this offering.
4.1
*
Form of Common Stock Certificate.
4.2
Investors' Rights Agreement, dated September 20, 2007, by and among the Registrant and certain of its stockholders, as amended.
5.1
*
Opinion of Fenwick & West LLP.
10.1
*
Form of Indemnification Agreement.
10.2
2002 Stock Option Plan and forms of award agreements.
10.3
2012 Equity Incentive Plan and forms of award agreements.
10.4
*
2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements.
10.5
*
2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement.
10.6
Offer Letter, accepted and agreed to on March 14, 2008, by and between the Registrant and Peter D. Staple.
10.7
Offer Letter, accepted and agreed to on August 28, 2012, by and between the Registrant and Robert S. Breuil.
10.8
Severance Benefits Letter, accepted and agreed to on June 25, 2013, by and between the Registrant and Parminder Singh.
10.9
Lease dated March 20, 2002, by and between the Registrant and Baker-Wilcox L.L.C. (predecessor to Virtu Brunswick Associates, LLC) as amended March 1, 2004, March 22, 2007, and July 13,
2012.
10.10
Lease dated April 5, 2004, by and between the Registrant and Firco Associates, L.L.C. (predecessor to Virtu Brunswick Associates, LLC), as amended November 10, 2004, March 22, 2007, and
July 1, 2012.
10.11
Business Park Lease dated October 13, 2006, by and between the Registrant and David D. Bohannon Organization, as amended November 15, 2013.
10.12
Lease dated April 30, 2012, by and between the Registrant and 4741 Talon Court L.L.C.
II-3
Table of Contents
Exhibit
Number
Description of Document
10.13
†
Second Amended and Restated Loan and Security Agreement dated August 31, 2012, by and between the Registrant and Silicon Valley Bank.
10.14
Term Loan Agreement dated July 13, 2012, by and among the Registrant and Capital Royalty Partners II L.P., Capital Royalty Partners II — Parallel Fund "A" L.P. and Parallel Investment
Opportunities Partners II L.P.
10.15
†
Product Development, Collaboration and License Agreement, dated May 11, 2002, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical Inc.).
10.16
†
Manufacturing and Supply Agreement For Transdermal Fentanyl, dated November 12, 2003, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical Inc.), as amended
July 24, 2013.
10.17
†
Assignment and Assumption Agreement, dated November 6, 2012, by and between Actavis South Atlantic LLC, and Par Pharmaceutical, Inc., and acknowledged and consented to by the Registrant.
10.18
†
Amended and Restated Settlement Agreement, dated November 6, 2012, by and between the Registrant and Actavis South Atlantic LLC.
10.19
†
Development, License and Commercialization Agreement, dated October 18, 2006, by and between the Registrant and Agile Therapeutics, Inc. as modified by the Addendum to the Development, License and
Commercialization Agreement, dated January 10, 2012, by and between the Registrant and Agile Therapeutics, Inc. and Addendum No. 2 to Development, License and Commercialization Agreement, dated February 6, 2013, by and between the
Registrant and Agile Therapeutics, Inc.
10.20
†
Development, Manufacturing and Commercialization Agreement, dated May 5, 2004, by and between the Registrant and Barr Laboratories, Inc., as amended by letter agreements dated September 8, 2009 and
June 21, 2010.
10.21
†
Development, Manufacturing and Commercialization Agreement, dated August 14, 2006, by and between the Registrant and Barr Laboratories, Inc.
10.22
†
License Agreement, dated June 13, 2005, by and between the Registrant and The Procter & Gamble Company.
10.23
†
Restated Supply Agreement, dated June 4, 2010, by and between the Registrant and The Procter & Gamble Manufacturing Company as amended effective on October 8, 2010 and February 1,
2014.
21.1
Subsidiaries of the Registrant.
23.1
Consent of Independent Registered Public Accounting Firm.
23.2
*
Consent of Fenwick & West LLP (included in Exhibit 5.1).
24.1
Power of Attorney (included in page II-6 of the registration statement on Form S-1 filed herewith).
*
To
be filed by amendment.
†
Confidential
treatment will be requested with respect to portions of this exhibit.
(b)
Financial Statement Schedules.
All financial statement schedules are omitted because
they are not applicable or the information is included in the Registrant's financial statements or related notes.
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Item 17.    Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The
undersigned Registrant hereby undertakes that:
(1)  For
purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2)  For
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Menlo Park, State of California, on this 3rd day of March, 2014.
CORIUM INTERNATIONAL, INC.
/s/ PETER D. STAPLE
Peter D. Staple
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Peter D. Staple and
Robert S. Breuil, and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this
registration statement (including post-effective amendments) and any registration statement related thereto filed pursuant to Rule 462(b) increasing the number of securities for which
registration is sought, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PETER D. STAPLE
Peter D. Staple
Chief Executive Officer
(Principal Executive Officer)
March 3, 2014
/s/ ROBERT S. BREUIL
Robert S. Breuil
Chief Financial Officer
(Principal Financial Officer)
March 3, 2014
/s/ TIMOTHY D. SWEEMER
Timothy D. Sweemer
Chief Accounting Officer
(Principal Accounting Officer)
March 3, 2014
/s/ BHASKAR CHAUDHURI, PH.D
Bhaskar Chaudhuri, Ph.D
Director
March 3, 2014
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Signature
Title
Date
/s/ GARY W. CLEARY, PH.D
Gary W. Cleary, Ph.D
Director
March 3, 2014
/s/ RONALD EASTMAN
Ronald Eastman
Director
March 3, 2014
/s/ PHYLLIS GARDNER, M.D.
Phyllis Gardner, M.D.
Director
March 3, 2014
/s/ DAVID GREENWOOD
David Greenwood
Executive Chairman, Director
March 3, 2014
/s/ JOHN KOZARICH, PH.D
John Kozarich, Ph.D
Director
March 3, 2014
/s/ ROBERT W. THOMAS
Robert W. Thomas
Director
March 3, 2014
/s/ DANIEL G. WELCH
Daniel G. Welch
Director
March 3, 2014
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EXHIBIT INDEX
Exhibit
Number
Description of Document
1.1
*
Form of Underwriting Agreement.
3.1
Restated Certificate of Incorporation, as amended to date.
3.2
*
Form of Restated Certificate of Incorporation to be effective in connection with the closing of this offering.
3.3
Bylaws, as currently in effect.
3.4
*
Form of Restated Bylaws to be effective in connection with the closing of this offering.
4.1
*
Form of Common Stock Certificate.
4.2
Investors' Rights Agreement, dated September 20, 2007, by and among the Registrant and certain of its stockholders, as amended.
5.1
*
Opinion of Fenwick & West LLP.
10.1
*
Form of Indemnification Agreement.
10.2
2002 Stock Option Plan and forms of award agreements.
10.3
2012 Equity Incentive Plan and forms of award agreements.
10.4
*
2014 Equity Incentive Plan, to become effective on the date immediately prior to the date the registration statement is declared effective, and forms of award agreements.
10.5
*
2014 Employee Stock Purchase Plan, to become effective on the date the registration statement is declared effective, and form of subscription agreement.
10.6
Offer Letter, accepted and agreed to on March 14, 2008, by and between the Registrant and Peter D. Staple.
10.7
Offer Letter, accepted and agreed to on August 28, 2012, by and between the Registrant and Robert S. Breuil.
10.8
Severance Benefits Letter, accepted and agreed to on June 25, 2013, by and between the Registrant and Parminder Singh.
10.9
Lease dated March 20, 2002, by and between the Registrant and Baker-Wilcox L.L.C. (predecessor to Virtu Brunswick Associates, LLC) as amended March 1, 2004, March 22, 2007, and July 13,
2012.
10.10
Lease dated April 5, 2004, by and between the Registrant and Firco Associates, L.L.C. (predecessor to Virtu Brunswick Associates, LLC), as amended November 10, 2004, March 22, 2007, and
July 1, 2012.
10.11
Business Park Lease dated October 13, 2006, by and between the Registrant and David D. Bohannon Organization, as amended November 15, 2013.
10.12
Lease dated April 30, 2012, by and between the Registrant and 4741 Talon Court L.L.C.
10.13
†
Second Amended and Restated Loan and Security Agreement dated August 31, 2012, by and between the Registrant and Silicon Valley Bank.
10.14
Term Loan Agreement dated July 13, 2012, by and among the Registrant and Capital Royalty Partners II L.P., Capital Royalty Partners II — Parallel Fund "A" L.P. and Parallel Investment
Opportunities Partners II L.P.
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Exhibit
Number
Description of Document
10.15
†
Product Development, Collaboration and License Agreement, dated May 11, 2002, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical, Inc.).
10.16
†
Manufacturing and Supply Agreement For Transdermal Fentanyl, dated November 12, 2003, by and between the Registrant and Abrika LLLP (predecessor-in-interest to Par Pharmaceutical, Inc.), as amended
July 24, 2013.
10.17
†
Assignment and Assumption Agreement, dated November 6, 2012, by and between Actavis South Atlantic LLC, and Par Pharmaceutical, Inc., and acknowledged and consented to by the Registrant.
10.18
†
Amended and Restated Settlement Agreement, dated November 6, 2012, by and between the Registrant and Actavis South Atlantic LLC.
10.19
†
Development, License and Commercialization Agreement, dated October 18, 2006, by and between the Registrant and Agile Therapeutics, Inc. as modified by the Addendum to the Development, License and
Commercialization Agreement, dated January 10, 2012, by and between the Registrant and Agile Therapeutics, Inc. and Addendum No. 2 to Development, License and Commercialization Agreement, dated February 6, 2013, by and between the
Registrant and Agile Therapeutics, Inc.
10.20
†
Development, Manufacturing and Commercialization Agreement, dated May 5, 2004, by and between the Registrant and Barr Laboratories, Inc., as amended by letter agreements dated September 8, 2009 and
June 21, 2010.
10.21
†
Development, Manufacturing and Commercialization Agreement, dated August 14, 2006, by and between the Registrant and Barr Laboratories, Inc.
10.22
†
License Agreement, dated June 13, 2005, by and between the Registrant and The Procter & Gamble Company.
10.23
†
Restated Supply Agreement, dated June 4, 2010, by and between the Registrant and The Procter & Gamble Manufacturing Company as amended effective on October 8, 2010 and February 1,
2014.
21.1
Subsidiaries of the Registrant.
23.1
Consent of Independent Registered Public Accounting Firm.
23.2
*
Consent of Fenwick & West LLP (included in Exhibit 5.1).
24.1
Power of Attorney (included in page II-6 of the registration statement on Form S-1 filed herewith).
*
To
be filed by amendment.
†
Confidential
treatment will be requested with respect to portions of this exhibit.