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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>As filed with the Securities and Exchange
Commission on June 15, 2012</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>Registration No. 333 - </B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, D.C. 20549</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM S-1</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES ACT OF 1933</B></P>

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

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

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

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LUXEYARD, INC.</B></P>

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

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

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font-family: Times New Roman, Times, Serif">
<TR>
    <TD STYLE="width: 32%; font-size: 10pt; font-weight: bold; text-align: center">Delaware</TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 31%; font-size: 10pt; font-weight: bold; text-align: center">7389</TD>
    <TD STYLE="width: 3%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 31%; font-size: 10pt; font-weight: bold; text-align: center">30-0473898</TD></TR>
<TR>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(State or other jurisdiction</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">of incorporation or</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">organization)</P></TD>
    <TD STYLE="font-size: 10pt; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Primary Standard</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Industrial Classification</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Code Number)</P></TD>
    <TD STYLE="vertical-align: top; font-size: 10pt; text-align: center">&nbsp;</TD>
    <TD STYLE="vertical-align: top">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(I.R.S. Employer</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Identification Number)</P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>8884 Venice Blvd.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Los Angeles, CA 90034</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0"><B>(323) 488-3574</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">including area code, of registrant&rsquo;s
principal executive offices)</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>3422 Old Capital Trail, Suite 700</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Wilmington, DE 19808</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(302) 996-5819</B></P>

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

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 32%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 35%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Richard I. Anslow, Esq.</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Anslow &amp; Jaclin LLP</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>195 Route 9 South, Suite 204</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Manalapan, New Jersey 07726</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Tel No.: (732) 409-1212</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Fax No.: (732) 577-1188</B></P></TD>
    <TD STYLE="width: 33%; font-size: 10pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Approximate date of commencement of
proposed sale to the public:</B> As soon as practicable after this Registration Statement becomes effective.</P>

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

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

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 &ldquo;large accelerated filer,&rdquo; &ldquo;accelerated filer&rdquo; and &ldquo;smaller reporting company&rdquo; in Rule 12b2
of the Exchange Act.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 40%">Large accelerated filer</TD>
    <TD STYLE="width: 11%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD STYLE="width: 39%">Accelerated filer</TD>
    <TD STYLE="width: 10%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer</TD>
    <TD><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD>Smaller reporting company</TD>
    <TD><FONT STYLE="font-family: Wingdings">&thorn;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;(Do not check if a smaller reporting company)</P>

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

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">Title of Each Class Of Securities to be Registered</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount to<BR>
be <BR>Registered<BR>
(1)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Proposed Maximum Offering<BR>
Price <BR>per share<BR>
(2)</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Proposed Maximum Aggregate Offering<BR>
Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount of <BR>Registration<BR>
Fee</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%">Common stock, $0.0001 par value per share</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">6,141,287</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1.33</TD><TD STYLE="width: 1%; text-align: left">(2)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">8,167,912</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">936.04</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock, $0.0001 par value per share, issuable upon conversion of 8% Convertible Perpetual Preferred Stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,904,287</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.35</TD><TD STYLE="text-align: left">(3)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">3,116,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">357.15</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Common stock, $0.0001 par value per share, issuable upon exercise of the warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,400,012</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.30</TD><TD STYLE="text-align: left">(4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,620,004</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">185.65</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Common stock, $0.0001 par value per share, issuable upon exercise of the warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,452,144</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.35</TD><TD STYLE="text-align: left">(4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,558,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">178.58</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Common stock, $0.0001 par value per share, issuable upon exercise of the warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,246,860</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.50</TD><TD STYLE="text-align: left">(4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">7,123,430</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">816.34</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39,144,590</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,473.76</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(1)</TD><TD STYLE="text-align: justify">This registration statement includes an indeterminate number of additional shares of common stock
issuable for no additional consideration pursuant to any stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration, which results in an increase in the number of outstanding shares of our common stock.
In the event of a stock split, stock dividend or similar transaction involving our common stock, in order to prevent dilution,
the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a)
under the Securities Act of 1933, as amended.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(2)</TD><TD STYLE="text-align: justify">Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under
the Securities Act of 1933, as amended, using the average of the high and low prices as reported on the OTC Bulletin Board on June
13, 2012 which was $1.33 per share.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(3)</TD><TD STYLE="text-align: justify">Calculated based upon the conversion price of the 8% preferred stock held by the selling stockholder
named in this Registration Statement.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.5in">(4)</TD><TD STYLE="text-align: justify">Calculated based upon the exercise price of the warrants held by the selling stockholder named
in this Registration Statement.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission,
acting pursuant to said Section 8(a), may determine.</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: red"><B>The information in this
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 prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.</B></P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR>
    <TD STYLE="width: 32%; vertical-align: top; color: red; font-weight: bold">PRELIMINARY PROSPECTUS</TD>
    <TD STYLE="width: 35%; vertical-align: bottom; color: red; font-weight: bold; text-align: center">SUBJECT TO COMPLETION</TD>
    <TD STYLE="width: 33%; vertical-align: top; color: red; font-weight: bold; text-align: right">DATED June&nbsp;15 , 2012</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>39,144,590 Shares of Common Stock</B></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">This prospectus covers the sale by the
selling stockholders of up to (i) 8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own
8% Convertible Perpetual Preferred Stock, par value $0.0001 per share, (ii) 441,275 shares of common stock, par value $0.0001 per
share, issuable to the selling stockholders as payment for any dividends on the 8% preferred stock (based on a common stock per
share price of $1.13 per share, the last sale price of our shares as reported by the OTCQB on June 13, 2011, over a two year period
at a 8% dividend per year), (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our
common stock issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share,
(v) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise
price of $0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling
stockholders at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the
Series D warrants held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common
stock issuable upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share,
and (ix) 890,429 shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at
an exercise price of $0.50 per share. The shares being sold by the selling stockholders were issued to them in private placement
transactions which were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended
(the &ldquo;Securities Act&rdquo;). Our 8% preferred stock, common stock and warrants are more fully described in &ldquo;Description
of Securities.&rdquo;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">These shares will be offered for sale by
the selling shareholders in accordance with the &ldquo;Plan of Distribution.&rdquo; We will not receive any proceeds from sales
of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash,
if at all, we will receive the exercise price of the warrants. We will pay the expenses incurred in connection with the offering
described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by
selling stockholders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our common stock is presently traded on
the OTCQB (the &ldquo;OTCQB&rdquo;) under the symbol LUXR. On June 13, 2012, the last sale price of our shares as reported by the
OTCQB was $1.13 per share. The prices at which the selling stockholders may sell the shares of common stock that are part of this
offering may be market prices prevailing at the time of sale, at negotiated prices, at fixed prices, or at varying prices determined
at the time of sale. See &ldquo;Plan of Distribution.&rdquo;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Investing in our common stock
involves a high degree of risk. See &ldquo;Risk Factors&rdquo; beginning on page 8 to read about factors you should consider
before investing in shares of our common stock.</B></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The date of this prospectus is&nbsp;[<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]</U>,&nbsp;2012</P>

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="width: 94%; vertical-align: top">PROSPECTUS SUMMARY</TD>
    <TD STYLE="width: 6%; vertical-align: bottom">4</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">RISK FACTORS</TD>
    <TD STYLE="vertical-align: bottom">8</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS</TD>
    <TD STYLE="vertical-align: bottom">18</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">DIVIDEND POLICY</TD>
    <TD STYLE="vertical-align: bottom">18</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">USE OF PROCEEDS</TD>
    <TD STYLE="vertical-align: bottom">18</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">DILUTION</TD>
    <TD STYLE="vertical-align: bottom">19</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">PENNY STOCK CONSIDERATIONS</TD>
    <TD STYLE="vertical-align: bottom">19</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">SELLING STOCKHOLDERS</TD>
    <TD STYLE="vertical-align: bottom">19</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">DESCRIPTION OF BUSINESS</TD>
    <TD STYLE="vertical-align: bottom">25</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS</TD>
    <TD STYLE="vertical-align: bottom">34</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</TD>
    <TD STYLE="vertical-align: bottom">36</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">DIRECTORS AND EXECUTIVE OFFICERS</TD>
    <TD STYLE="vertical-align: bottom">42</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">EXECUTIVE COMPENSATION</TD>
    <TD STYLE="vertical-align: bottom">46</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</TD>
    <TD STYLE="vertical-align: bottom">49</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</TD>
    <TD STYLE="vertical-align: bottom">50</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">DESCRIPTION OF SECURITIES</TD>
    <TD STYLE="vertical-align: bottom">52</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">PLAN OF DISTRIBUTION</TD>
    <TD STYLE="vertical-align: bottom">57</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">SHARES ELIGIBLE FOR FUTURE SALE</TD>
    <TD STYLE="vertical-align: bottom">57</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">LEGAL MATTERS</TD>
    <TD STYLE="vertical-align: bottom">58</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">EXPERTS</TD>
    <TD STYLE="vertical-align: bottom">58</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">WHERE YOU CAN FIND MORE INFORMATION</TD>
    <TD STYLE="vertical-align: bottom">58</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: top">DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF&nbsp; SECURITIES ACT LIABILITIES</TD>
    <TD STYLE="vertical-align: bottom">59</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="vertical-align: top">INDEX TO FINANCIAL STATEMENTS</TD>
    <TD STYLE="vertical-align: bottom">F-1</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Please read this prospectus carefully.
It describes our business, our financial condition and results of operations. We have prepared this prospectus so that you will
have the information necessary to make an informed investment decision.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">You should rely only on information contained
in this prospectus. We have not authorized any other person to provide you with different information. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information
in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that
date.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1pt 0pt 0; text-align: justify"><I>This summary highlights selected information
contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing
in the common stock. You should carefully read the entire prospectus, including &ldquo;Risk Factors,&rdquo; &ldquo;Management&rsquo;s
Discussion and Analysis of Financial Condition and Results of Operations&rdquo; and the consolidated financial statements, before
making an investment decision. Our actual results may differ significantly from the results discussed in these forward-looking
statements as a result of certain factors, including those described in &ldquo;Risk Factors&rdquo; and &ldquo;Cautionary Note Regarding
Forward-Looking Statements.&rdquo; All references to &ldquo;we,&rdquo; &ldquo;us,&rdquo; &ldquo;our,&rdquo; and the &ldquo;company&rdquo;
mean Luxeyard, Inc.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a &ldquo;flash sale&rdquo;
or &ldquo;daily deal&rdquo; at deep discounts to retail prices.&nbsp;&nbsp;In January 2012, we launched our website www.Luxeyard.com
and began operations. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. On March
27, 2012, we launched LuxeStyle, our apparel and accessories line. &nbsp;As our member base and merchant selection increase, we
expect to expand our offerings to include other consumer goods such as travel, gourmet food and beverages, consumer services events
and gift cards.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">Each week we conduct several &ldquo;flash
sale&rdquo; events on our website in which we feature merchandise at steep discounts to suggested retail prices.&nbsp;&nbsp;At
the beginning of each event, members receive an email describing the featured products and it directs them to our website to participate.&nbsp;&nbsp;We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">In addition to flash sales, we also feature
a &ldquo;Daily Deal&rdquo; whereby we offer a single product on our website for a 24 hour period.&nbsp;&nbsp;Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.&nbsp;&nbsp;Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.&nbsp;&nbsp;In
some cases, when our group buy feature is active, as more members participate in the deal, the purchase price decreases. <FONT STYLE="font-weight: normal">Group
buying</FONT>, also known as collective buying, offers products and services at significantly reduced prices on the condition that
a minimum number of buyers would make the purchase.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant&rsquo;s location to the member.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">In April we began a Business to Business
program through which we source containers of goods and sell them to retailers. The retailers are offered products prior to the
arrival of the container shipments and any unsold items from the container shipment are then offered on our website.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0pt 0pt 0; text-align: justify">We operate in an extremely competitive
&ldquo;flash sales&rdquo; space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company&rsquo;s ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.</P>

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

</DIV>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 1pt 0pt 0; text-align: justify">&nbsp;</P>

<DIV STYLE="border: Black 1pt solid">

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our principal executive offices are located
at 8884 Venice Boulevard, Los Angeles, California 90034 and our telephone number is (323) 488-3574. Our website address is <I>www.Luxeyard.com</I>.
The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration
statement of which it forms a part. The information on our website is not part of this prospectus.</P>

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

</DIV>

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 99%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 49%; font-weight: bold">Common stock offered by selling stockholders</TD>
    <TD STYLE="width: 2%; text-align: justify">&nbsp;</TD>
    <TD STYLE="width: 49%">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">39,144,590 shares of our common stock including:
        up to (i) 8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii)
        441,275 shares of common stock, par value $0.0001 per share, issuable to the selling stockholders as payment for any dividends
        on the 8% preferred stock, (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our
        common stock issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share,
        (v) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise
        price of $0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling
        stockholders at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the
        Series D warrants held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common
        stock issuable upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share,
        and (ix) 890,429 shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at
        an exercise price of $0.50 per share.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Common stock outstanding before the offering</TD>
    <TD>&nbsp;</TD>
    <TD>69,002,253 shares of common stock (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Common stock outstanding after the offering</TD>
    <TD>&nbsp;</TD>
    <TD>108,146,843 shares of common stock (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Use of proceeds</TD>
    <TD STYLE="text-align: justify">&nbsp;</TD>
    <TD STYLE="text-align: justify">We will not receive any proceeds from the sale of the common stock by the selling stockholders. However, we may receive up to approximately $10,301,634 in the aggregate upon the exercise of the warrants if the holders exercise them for cash. The registration of common stock pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold by the selling stockholders.&nbsp; We intend to use the proceeds received from any cash exercise of the warrants for working capital and general corporate purposes.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Trading Symbol</TD>
    <TD>&nbsp;</TD>
    <TD>LUXR</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-weight: bold">Risk Factors</TD>
    <TD>&nbsp;</TD>
    <TD>The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See &ldquo;Risk Factors&rdquo;.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

</DIV>

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<DIV STYLE="border: Black 1pt solid">

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 99%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(1)</TD><TD>Based upon the total number of issued and outstanding shares as of June 11, 2012.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 99%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">(2)</TD><TD>Based upon the total number of issued and outstanding shares as of June 11, 2012, and including (i) 8,904,287 shares of common
stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii) 441,275 shares of common stock, issuable
to the selling stockholders as payment for any dividends on the 8% preferred stock, (iii) 2,700,006 shares of our common stock
issuable upon exercise of Series A warrants, (iv) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants,
(v) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants, (vi) 4,452,144 shares of our common stock
issuable upon exercise of the Series D warrants, (vii) 4,452,144 shares of our common stock issuable upon exercise of the Series
E warrants, and (viii) 890,429 shares of our common stock issuable upon exercise of placement agent warrants.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

</DIV>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>An investment in our common stock involves
a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition
or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may
lose all or part of your investment. You should read the section entitled &ldquo;Special Note Regarding Forward Looking Statements&rdquo;
below for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements
in the context of this report.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We have a history of operating losses
and there can be no assurance that we can achieve or maintain profitability.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have a history of operating losses and
may not achieve or sustain profitability. We cannot guarantee that we will become profitable.&nbsp;&nbsp;Even if we achieve profitability,
given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability
and our failure to do so would adversely affect our business, including our ability to raise additional funds.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our operating results may fluctuate
significantly and our stock price could decline or fluctuate if our results do not meet the expectation of analysts or investors.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We expect to experience substantial variations
in our net sales and operating results from quarter to quarter.&nbsp;&nbsp;As a result of fluctuations in our revenue and operating
expenses that may occur, we believe that period-to-period comparisons of our results of operations are not a good indication of
our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations
of securities analysts or investors. In that case, our common stock price could fluctuate significantly or decline.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our independent registered public
accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future
financing.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our financial statements as of December
31, 2011 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting
firm has issued a report that included an explanatory paragraph referring to our recurring net losses and negative cash flows from
operations and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce
expenditures, and, ultimately, generate additional revenue. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. We are continually evaluating opportunities to raise additional funds through public
or private equity financings, as well as evaluating prospective business partners, and will continue to do so. However, if adequate
funds are not available to us when we need them, and we are unable to enter into some form of strategic relationship that will
give us access to additional cash resources, we will be required to even further curtail our operations which would, in turn, further
raise substantial doubt about our ability to continue as a going concern.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we fail to acquire and retain
members, our revenue and business will be harmed.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We expect to spend approximately $4,319,715
on online marketing and advertising initiatives relating to member acquisition for the next twelve months and expect to continue
to spend significant amounts to acquire additional members. We must acquire and retain members that purchase our deals in order
to increase revenue and achieve profitability. We cannot assure you that the revenue from members we acquire will ultimately exceed
the cost of acquiring members. If consumers do not perceive our offers to be of high value and quality or if we fail to introduce
new and more relevant deals, we may not be able to acquire or retain members. If we are unable to acquire and retain members who
purchase our deals in numbers sufficient to grow our business, or if members cease to purchase our deals, the revenue we generate
may decrease and our operating results will be adversely affected.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, some of our new members are
originated from word-of-mouth or other non-paid referrals including other members, and therefore we must ensure that our members
will remain loyal to our service in order for us to continue receiving those referrals. If our efforts to satisfy our members are
not successful, we may not be able to acquire new members in sufficient numbers to grow our business or we may be required to incur
significantly higher marketing expenses in order to acquire new members. Further, we believe that our success is influenced by
the level of communication and sharing among members. If the level of usage by our member base does not grow as expected, we may
suffer a decline in member growth or revenue. A failure to acquire members or a significant decrease in the level of member usage
after or the launch of our website would have an adverse effect on our business, financial condition and results of operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we fail to initially attract merchants
or fail to add new merchants after the launch of our website, our revenue and business will be harmed.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We depend on our ability to attract and
retain merchants that are prepared to offer products or services on compelling terms through our marketplace. We currently do not
have any long-term arrangements with the vendors to guarantee the availability of deals that offer attractive quality, value and
variety to consumers or favorable payment terms to the Company.&nbsp;&nbsp;We must attract and then retain merchants in order to
generate and increase revenue and achieve profitability. If merchants do not find our marketing and promotional services effective
or do not believe that utilizing our services provide them with a long-term increase in customers, revenue or profit, they may
not make, or continue to make, offers through our marketplace. In addition, we may experience attrition in our merchants in the
ordinary course of business resulting from several factors, including losses to competitors and merchant closures or bankruptcies.
If we are unable to attract merchants in numbers sufficient to grow our business, or if too many merchants are unwilling to offer
products or services with compelling terms through our marketplace or offer favorable payment terms to us, we may sell fewer deals
and our operating results will be adversely affected.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If our efforts to market, advertise and
promote products and services from our merchants are not successful, or if merchants do not believe that utilizing our services
provides them with a long-term increase in customers, revenue or profit, we may not be able to attract and retain merchants in
sufficient numbers to grow our business or we may be required to incur significantly higher marketing expenses or accept lower
margins in order to attract merchants. A failure to attract merchants, a significant increase in merchant attrition or decrease
in merchant growth would have an adverse effect on our business, financial condition and results of operation.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business is highly competitive.&nbsp;&nbsp;Competition
presents an ongoing threat to the success of our business.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The online group buying market is extremely
competitive and we expect competition in e-commerce generally, and group buying in particular, to continue to increase because
there are no significant barriers to entry. A substantial number of group buying sites that feature similar business models exist
and may continue to emerge. In addition to such competitors, we expect to increasingly compete against other large internet and
technology-based businesses, such as Amazon, Google and Microsoft, each of which has launched initiatives which are directly competitive
to our business. We also expect to compete against other internet sites that are focused on specific communities or interests and
offer discount arrangements related to such communities or interests. We also compete with traditional offline discount services,
as well as newspapers, magazines and other traditional media companies who provide coupons and discounts on products and services.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We believe that our ability to compete
depends upon many factors both within and beyond our control, including the following:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the size and composition of our member base and the number of merchants
we feature;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">the timing and market acceptance of deals we offer, including the
developments and enhancements to those deals offered by us or our competitors;</FONT></TD></TR></TABLE>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">ease of use, performance, price and reliability of services offered
either by us or our competitors;</FONT></TD></TR></TABLE>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">our ability to cost-effectively manage our operations; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">our reputation and brand strength relative to our competitors.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Many of our current and potential competitors
have longer operating histories, significantly greater financial, marketing and other resources and larger member bases than we
do. These factors may allow our competitors to benefit from their existing customer or member base with lower customer acquisition
costs or to respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors
may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive
pricing policies, which may allow them to build larger member bases or generate revenue from their member bases more effectively
than we do. Our competitors may offer deals that are similar to the deals we offer or that achieve greater market acceptance than
the deals we offer. This could attract members away from our websites, reduce our market share and adversely impact our revenue.
In addition, we are dependent on some of our existing or potential competitors for banner advertisements and other marketing initiatives
to acquire new members. Our ability to utilize their platforms to acquire new members may be adversely affected if they choose
to compete more directly with us.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we are unable to retain favorable
terms with our merchants, our revenue may be adversely affected.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The success of our business depends in
part on our ability to attract, retain and increase the number of merchants who use our service.&nbsp;&nbsp;If merchants decide
that utilizing our services no longer provides an effective means of attracting new customers or selling their goods and services,
they may demand a higher percentage of the gross billings from each deal sold. This would adversely affect our revenue.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, some competitors may accept
lower margins, or negative margins, to attract attention and acquire new members. If competitors engage in group buying initiatives
in which merchants receive a higher percentage of the gross billings than we offer, we may be forced to pay a higher percentage
of the gross billings than we offer, which may reduce our revenue.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business relies heavily on email
and other messaging services, and any restrictions on the sending of emails or messages or a decrease in member willingness to
receive messages could adversely affect our revenue and business.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our business will be highly dependent upon
email and other messaging services. Deals offered through emails and other messages sent by us, or on our behalf by our affiliates,
are expected to generate a substantial portion of our revenue. Because of the importance of email and other messaging services
to our businesses, if we are unable to successfully deliver emails or messages to our members or potential members, or if members
decline to open our emails or messages, our revenue and profitability would be adversely affected. Actions by third parties to
block, impose restrictions on, or charge for the delivery of emails or other messages could also materially and adversely impact
our business. From time to time, internet service providers block bulk email transmissions or otherwise experience technical difficulties
that result in our inability to successfully deliver emails or other messages to third parties. In addition, our use of email and
other messaging services to send communications about our website or other matters may result in legal claims against us, which
if successful might limit or prohibit our ability to send emails or other messages. Any disruption or restriction on the distribution
of emails or other messages or any increase in the associated costs would materially and adversely affect our revenue and profitability.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If our merchants do not meet the
needs and expectations of our members, our business could suffer.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our business will depend on providing high-quality
luxury deals and our brand and reputation may be harmed by actions taken by merchants that are outside our control. Any shortcomings
of one or more of our merchants, particularly with respect to delivery of products or an issue affecting the quality of the deal
offered or the products or services sold, may be attributed by our members to us, thus damaging our reputation, brand value and
potentially affecting our results of operations. In addition, negative publicity and member sentiment generated as a result of
fraudulent or deceptive conduct by our merchants could damage our reputation, reduce our ability to attract new members or retain
our current members, and diminish the value of our brand.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business depends substantially
on the continuing efforts of our senior management and other key personnel, and our business may be severely disrupted if we lost
their services.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our future success heavily depends on the
continued service of our senior management and other key employees. If one or more of our senior executives are unable or unwilling
to continue to work for us in their present positions, we may have to spend a considerable amount of time and resources searching,
recruiting, and integrating the replacements into our operations, which would substantially divert management&rsquo;s attention
from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy.
Moreover, if any of our senior executives joins a competitor or forms a competing company, we may lose customers, suppliers, know-how,
and key employees.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our senior management&rsquo;s limited
experience managing a publicly traded company may divert management&rsquo;s attention from operations and harm our business.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our senior management team has relatively
limited experience managing a publicly traded company and complying with federal securities laws, including compliance with recently
adopted disclosure requirements on a timely basis.&nbsp;&nbsp;Our management will be required to design and implement appropriate
programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do
so could lead to the imposition of fines and penalties and harm our business.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We may be unable to attract and retain
qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our success depends to a significant degree
upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future,
we may find our recruiting and retention efforts more challenging. We will be seeking to hire a significant number of personnel,
including certain key management personnel. If we do not succeed in attracting, hiring and integrating excellent personnel, or
retaining and motivating existing personnel, we may be unable to grow effectively. The loss of any key employee, including members
of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industries
could harm our business.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business is impacted by general
economic conditions and related uncertainties affecting markets in which we operate.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">General economic conditions, in particular
conditions that impact consumer spending and construction and industrial activity, could adversely impact our business. These conditions
could result in reduced demand for our deals, increased order cancellations and returns, an increased risk of excess and obsolete
inventories and increased pressure on the prices of our products.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Difficult economic conditions could also
increase the risk of extending credit to our retailers. Although we believe that our use of a commercial factor reduces such risk,
the factor may at any time terminate or limit its approval of shipments to a particular customer, and the likelihood of the factor
doing so may increase as a result of current economic conditions.&nbsp;&nbsp;Such an action by the factor could result in the loss
of future sales to the affected customer.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We depend on the continued growth
of online commerce.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The business of selling goods and services
over the internet, particularly through coupons, is dynamic and relatively new. Concerns about fraud, privacy and other problems
may discourage additional consumers and merchants from adopting the internet as a medium of commerce. In order to expand our member
base, we must appeal to and acquire members who historically have used traditional means of commerce to purchase goods and services
and may prefer internet analogues to our offerings, such as the retailer&rsquo;s own website. If these consumers prove to be less
active than our earlier members, or we are unable to gain efficiencies in our operating costs, including our cost of acquiring
new members, our business could be adversely impacted.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Government regulation of the internet
and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm
our business and results of operations.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are subject to general business regulations
and laws as well as regulations and laws specifically governing the internet and e-commerce. Existing and future regulations and
laws could impede the growth of the internet or other online services. These regulations and laws may involve taxation, tariffs,
member privacy, anti-spam, data protection, content, copyrights, distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services and the characteristics and quality of services. It is not clear how existing
laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the internet as the
vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues
raised by the internet or e-commerce. In addition, it is possible that governments of one or more countries may seek to censor
content available on our websites and applications or may even attempt to completely block access to our websites. Adverse legal
or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole
or in part, from operating in one or more countries, our ability to retain or increase our member base may be adversely affected
and we may not be able to maintain or grow our revenue as anticipated.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Failure to comply with federal, state
and international privacy laws and regulations, or the expansion of current or the enactment of new privacy laws or regulations,
could adversely affect our business.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A variety of federal and state laws and
regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and
regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign
legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have
been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones
and other mobile devices. We will post privacy policies and practices concerning the collection, use and disclosure of member data
on our websites and applications. Several internet companies have incurred penalties for failing to abide by the representations
made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to
implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice
to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies
or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international
privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings
or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition,
a failure or perceived failure to comply with industry standards or with our own privacy policies and practices could result in
a loss of members or merchants and adversely affect our business. Federal and state governmental authorities continue to evaluate
the privacy implications inherent in the use of third-party web &ldquo;cookies&rdquo; for behavioral advertising. The regulation
of these cookies and other current online advertising practices could adversely affect our business.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We may suffer liability as a result
of information retrieved from or transmitted over the internet and claims related to our service offerings.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We may be, and in certain cases have been,
sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement, invasion of privacy, personal
injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims relating to
information that is published or made available on our websites or service offerings we make available. In addition, we could incur
significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events
occurs, our net income could be materially and adversely affected.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are subject to risks associated with
information disseminated through our websites and applications, including consumer data, content that is produced by our staff
and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being
sued by our merchants, members or third parties and as a result our revenue and goodwill could be materially and adversely affected.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business depends on our ability
to maintain and scale the network infrastructure necessary to operate our websites and applications, and any significant disruption
in service on our websites or applications could result in a loss of members, customers or merchants.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Members access our deals through our websites.
Our reputation and ability to acquire, retain and serve our members and customers are dependent upon the reliable performance of
our websites and the underlying network infrastructure. As our member base and the amount of information shared on our websites
continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue
to spend substantial amounts on data centers and equipment and related network infrastructure to handle the traffic on our websites
and applications. The operation of these systems is expensive and complex and could result in operational failures. In the event
that our member base or the amount of traffic on our websites grows more quickly than anticipated, we may be required to incur
significant additional costs. Interruptions in these systems, whether due to system failures, computer viruses or physical or electronic
break-ins, could affect the security or availability of our websites and applications, and prevent our members from accessing our
services. A substantial portion of our network infrastructure is hosted by third-party providers. Any disruption in these services
or any failure of these providers to handle existing or increased traffic could significantly harm our business. Any financial
or other difficulties these providers face may adversely affect our business, and we exercise little control over these providers,
which increases our vulnerability to problems with the services they provide. If we do not maintain or expand our network infrastructure
successfully or if we experience operational failures, we could lose current and potential members and merchants, which could harm
our operating results and financial condition.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our business depends on the development
and maintenance of the internet infrastructure.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The success of our services depends largely
on the development and maintenance of the internet infrastructure. This includes maintenance of a reliable network backbone with
the necessary speed, data capacity and security, as well as timely development of complementary products, for providing reliable
internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the
number of users and amount of traffic. The internet infrastructure may be unable to support such demands. In addition, increasing
numbers of users, increasing bandwidth requirements or problems caused by viruses, worms, malware and similar programs may harm
the performance of the internet. The backbone computers of the internet have been the targets of such programs. The internet has
experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages
and delays in the future. These outages and delays could reduce the level of internet usage generally as well as the level of usage
of our services, which could adversely impact our business.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We will incur increased costs as
a result of being a public company.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We face increased legal, accounting, administrative
and other costs and expenses as a public company that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, including
the requirements of Section 404, as well as new rules and regulations subsequently implemented by the Securities and Exchange Commission
(the &ldquo;SEC&rdquo;), the Public Company Accounting Oversight Board (the &ldquo;PCAOB&rdquo;), impose additional reporting and
other obligations on public companies. We expect that compliance with these public company requirements will increase our costs
and make some activities more time-consuming. A number of those requirements will require us to carry out activities we have not
done previously. For example, we will adopt new internal controls and disclosure controls and procedures. In addition, we will
incur additional expenses associated with our SEC reporting requirements. Furthermore, if we identify any issues in complying with
those requirements (for example, if we or our accountants identify a material weakness or significant deficiency in our internal
control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could
adversely affect us, our reputation or investor perceptions of us. We also expect that it will be difficult and expensive to obtain
director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also
prompt even more changes in corporate governance and reporting requirements. We expect that the additional reporting and other
obligations imposed on us by these rules and regulations will increase our legal and financial compliance costs and the costs of
our related legal, accounting and administrative activities significantly. These increased costs will require us to divert a significant
amount of money that we could otherwise use to expand our business and achieve our strategic objectives.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our ability to raise capital in the
future may be limited, and our failure to raise capital when needed could prevent us from growing.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We may in the future be required to raise
capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or
at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests
of our common stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability.
If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our common stock has a limited trading
market, which could affect your ability to sell shares of our common stock and the price you may receive for our common stock.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our common stock is currently traded on
the OTCQB under the symbol &ldquo;LUXR.&rdquo; There is only limited trading activity in our securities. We have a relatively small
public float compared to the number of our shares outstanding. Accordingly, we cannot predict the extent to which investors&rsquo;
interest in our common stock will provide an active and liquid trading market. Due to our limited public float, we may be vulnerable
to investors taking a &ldquo;short position&rdquo; in our common stock, which would likely have a depressing effect on the price
of our common stock and add increased volatility to our trading market.&nbsp;&nbsp;The volatility of the market for our common
stock could have a materially adverse effect on our business, results of operations and financial condition. There cannot be any
guarantee that an active trading market for our securities will develop or, if such a market does develop, will be sustained. Accordingly,
investors must be able to bear the financial risk of losing their entire investment in our common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our common stock is quoted only on
the OTCQB, which may have an unfavorable impact on our stock price and liquidity.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our common stock is quoted on the OTCQB.
The OTCQB is a significantly more limited market than the New York Stock Exchange or The NASDAQ Stock Market. The quotation of
our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of
our common stock, could depress the trading price of our common stock, and could have a long-term adverse impact on our ability
to raise capital in the future.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>If we are unable to adequately fund
our operations, we may be forced to voluntarily file for deregistration of our common stock with the SEC.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Compliance with the periodic reporting
requirements required by the SEC consumes a considerable amount of both internal, as well external, resources and represents a
significant cost for us.&nbsp;&nbsp;We estimate that we will incur approximately $250,000 in costs in connection with compliance
with the periodic reporting requirements required by the SEC on an annual basis.&nbsp;&nbsp;If we are unable to continue to devote
adequate funding and the resources needed to maintain such compliance, while continuing our operations, we may be forced to deregister
with the SEC.&nbsp;&nbsp;If we file for deregistration, our common stock will no longer be listed on the OTCQB, and it may suffer
a decrease in, or absence of, liquidity as after the deregistration process is complete, our common stock will only be tradable
on the &ldquo;Pink Sheets.&rdquo;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Because we became public by means
of a &ldquo;reverse merger,&rdquo; we may not be able to attract the attention of major brokerage firms.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additional risks may exist since we will
become public through a &ldquo;reverse merger.&rdquo; Securities analysts of major brokerage firms may not provide coverage of
us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We cannot assure you that
brokerage firms will want to conduct any secondary offerings on behalf of our company in the future.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The sale of securities by us in any
equity or debt financing could result in dilution to our existing stockholders and have a material adverse effect on our earnings.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Any sale of common stock by us in a future
private placement offering could result in dilution to the existing stockholders as a direct result of our issuance of additional
shares of our capital stock.&nbsp;&nbsp;In addition, our business strategy may include expansion through internal growth, by acquiring
members email lists, or by establishing strategic relationships with targeted customers and vendor.&nbsp;&nbsp;In order to do so,
or to finance the cost of our other activities, we may issue additional equity securities that could dilute our stockholders&rsquo;
stock ownership.&nbsp;&nbsp;We may also assume additional debt and incur impairment losses related to goodwill and other tangible
assets if we acquire another company and this could negatively impact our earnings and results of operations.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>There may be future sales or other
dilution of our common stock, including from the conversion of our 8% preferred stock, and the exercise of our warrants, which
may materially adversely affect the market price of our common stock and negatively impact a holder&rsquo;s investments. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are not restricted from issuing additional
common stock, including any securities that are convertible into or exercisable for, or that represent the right to receive, common
stock or any substantially similar securities. We may issue additional preferred stock, except, if it ranks senior to, or on parity
with, our 8% preferred stock, we must obtain the consent of holders of our 8% preferred stock. In addition, quarterly dividends
payable on our 8% preferred stock may be paid &ldquo;in-kind,&rdquo; at our option, in additional shares of 8% preferred stock.
The market price of our common stock could decline as a result of sales of a large number of issuances of common stock, 8% preferred
stock, warrants or similar securities in the market in the future or the perception that such issuances could occur. For example,
if we issue preferred stock in the future that (i)&nbsp;has a preference over our common stock with respect to the payment of dividends
or upon our liquidation, dissolution or winding-up, (ii)&nbsp;has voting rights that dilute the voting power of our common stock
or (iii)&nbsp;is convertible into our common stock, the rights of holders of our common stock or the market price of our common
stock could be adversely affected.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each share of our 8% preferred stock is
convertible into, and each warrant is exercisable for, at the option of the holder, shares of our common stock. The conversion
or exercise of some or all of our 8% preferred stock or warrants, as applicable, will dilute the ownership interest of existing
holders of our common stock. Any sales in the public market of our common stock issuable upon such conversion or exercise could
adversely affect prevailing market prices of the outstanding shares of our common stock or 8% preferred stock or warrants. In addition,
the existence of our 8% preferred stock and warrants may encourage short selling or arbitrage trading activity by market participants
because the conversion of our 8% preferred stock or exercise of our warrants could depress the price of our common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Furthermore, grants of restricted common
stock and options have been made to our officers and key employees under our management incentive and other employee incentive
plans.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Together with these grants, there
are currently outstanding 9,234,321 shares of our 8% preferred stock that are currently convertible into 9,243,321 shares of
our common stock and warrants to purchase 25,089,915 shares of our common stock and 3,608,246 stock grants relating to
various agreements. Upon the vesting of restricted shares, the conversion of our 8% preferred stock or the exercise of warrants and
options, these securities would have a dilutive effect on our outstanding shares of common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Future sales of our common stock
in the public market could lower the price of our common stock and impair our ability to raise funds in future securities offerings.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future sales of a substantial number of
shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing
market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering
of its securities.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The market price of our common stock
may be volatile and may be affected by market conditions beyond our control.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The market price of our common stock is
subject to significant fluctuations in response to, among other factors:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">variations in our operating results and market conditions specific
to companies offering group-buying deals;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">changes in financial estimates or recommendations by securities analysts;</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">operating and market price performance of other companies that investors
deem comparable;</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

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<P STYLE="font: 10pt Symbol; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">sales or purchases of our common stock by insiders;</FONT></TD></TR></TABLE>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">general economic conditions and slow or negative growth of related
markets.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition, if the market for stocks in
our industry, or the stock market in general, experiences a loss of investor confidence, the market price of our common stock could
decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs it
could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to
defend and a distraction to the board of directors and management.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We do not intend to pay dividends
on our common stock for the foreseeable future, and you must rely on increases in the market prices of our common stock for returns
on your investment.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the foreseeable future, we intend to
retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends
on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to
earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination
to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations,
financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors
deems relevant.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>We are subject to penny stock regulations
and restrictions and you may have difficulty selling shares of our common stock.</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The SEC has adopted regulations which generally
define so-called &ldquo;penny stocks&rdquo; as an equity security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Our shares of common stock are &ldquo;penny stock&rdquo; and
we are subject to Rule 15g-9 under the Exchange Act (the &ldquo;Penny Stock Rule&rdquo;). This rule imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than established customers and &ldquo;accredited investors&rdquo;
(generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser&rsquo;s written consent to the transaction prior to sale. As a result, this rule may affect the ability
of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary
market.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule relating to the
penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">There can be no assurance that our shares
of common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock was exempt from the
Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict
any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public
interest.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Until the conversion of our 8% preferred
stock or the exercise of our warrants, holders of these securities do not have identical rights as holders of our common stock,
but they will be subject to all changes made with respect to our common stock. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Before converting shares of our 8% preferred
stock, holders of our 8% preferred stock are not entitled to any rights with respect to our common stock (other than voting rights
and rights to receive dividends or other distributions on our common stock), but they are subject to all changes affecting our
common stock. In addition, holders of warrants are not entitled to any rights with respect to our common stock (including, without
limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but they also will
be subject to all changes affecting our common stock. Even though holders of our 8% preferred stock vote on an as-converted
basis with holders of our common stock, they will only be entitled to exercise all of the rights of a holder of our common stock
upon conversion of their 8% preferred stock and only as to matters for which the record date occurs on or after the applicable
conversion date and to the extent permitted by law, although they will be subject to any changes in the powers, preferences or
special rights of our common stock that may occur as a result of any stockholder action. Similarly, holders of our warrants will
have rights with respect to our common stock only if they receive our common stock upon exercise of the warrants and only as of
the date when such holder becomes a record owner of the shares of our common stock upon such exercise. For example, with respect
to warrants, if an amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the
record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date a warrant holder
is deemed to be the owner of the shares of our common stock due upon exercise of the warrants, the exercising warrant holder will
not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes in the powers, preferences
or special rights of our common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>In the event of our voluntary or
involuntary liquidation, winding-up or dissolution, our 8% preferred stock will rank senior to our common stock but junior to all
of our liabilities. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the event of our voluntary or involuntary
liquidation, winding-up or dissolution, the holders of our 8% preferred stock may exercise their rights to convert all or a portion
of stock into common stock. Each holder of 8% preferred stock that does not exercise its rights to convert shall be entitled to
receive out of our assets, for each share of 8% preferred stock, cash in an amount equal to (i) the original issue price plus (ii)
all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the common stock, but after
payment of all outstanding indebtedness and all amounts due on liquidation, dissolution or winding-up in respect of all preferred
stock of the Corporation which by its terms is senior to the 8% preferred stock, if any.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Our 8% preferred stock is perpetual
in nature. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Shares of our 8% preferred stock represent
a perpetual interest in the Company and, unlike indebtedness, will not give rise to a claim for payment of a principal amount at
a particular date. Therefore, holders should be aware that they may be required to bear the financial risks of an investment in
our 8% preferred stock for an indefinite period of time, unless such holders convert, at their option, their shares of 8% preferred
stock into common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>A fundamental transaction with respect
to us may trigger certain rights for the purpose of our 8% preferred stock. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The certificate of designations of our
8% preferred stock contains a covenant that if a &ldquo;fundamental transaction&rdquo;, as defined in the certificate of designations
of our 8% preferred stock, occurs, then such event will be treated as liquidation for purposes of a liquidation preference in the
certificate of designations. In which case, the holders of our 8% preferred stock may exercise their rights to convert all or a
portion of stock into common stock. Each holder of preferred stock that does not exercise its rights to convert shall be entitled
to receive out of our assets, for each share of preferred stock, cash in an amount equal to (i) the original issue price plus (ii)
all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the common stock, but after
payment of all outstanding indebtedness and all amounts due on liquidation, dissolution or winding-up in respect of all preferred
stock of the Corporation which by its terms is senior to the 8% preferred stock, if any. Any change of control transaction with
respect to the Company may also negatively affect the liquidity, value or volatility of our common stock and thereby negatively
impact the value of our 8% preferred stock (and our warrants). Additionally, the provisions of our 8% preferred stock related to
fundamental transactions could have the effect of discouraging third parties from pursuing certain transactions with us, which
may otherwise be in the best interest of our stockholders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>The adjustment to the exercise price
for warrants exercised in connection with an anti-dilutive adjustment event may not adequately compensate you for any lost value
of your warrants as a result of such transaction. </I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If a specified corporate event or transaction
constituting a dilutive event occurs, under certain circumstances we will decrease the exercise price for warrants exercised in
connection with such dilutive adjustment event. The decrease in the exercise price will be determined based on the date on which
the dilutive event occurs or becomes effective and the price paid per share of our common stock in such dilutive event. The adjustment
to the exercise price for warrants exercised in connection with a dilutive event may not adequately compensate you for any lost
value of your warrants as a result of such dilutive event.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">This prospectus contains forward looking
statements that involve risks and uncertainties, principally in the sections entitled &ldquo;Description of Business,&rdquo; &ldquo;Risk
Factors,&rdquo; and &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations.&rdquo;
All statements other than statements of historical fact contained in this prospectus, including statements regarding future events,
our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including &ldquo;anticipates,&rdquo; &ldquo;believes,&rdquo;
&ldquo;can,&rdquo; &ldquo;continue,&rdquo; &ldquo;could,&rdquo; &ldquo;estimates,&rdquo; &ldquo;expects,&rdquo; &ldquo;intends,&rdquo;
&ldquo;may,&rdquo; &ldquo;plans,&rdquo; &ldquo;potential,&rdquo; &ldquo;predicts,&rdquo; &ldquo;should,&rdquo; or &ldquo;will&rdquo;
or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe
we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks outlined under &ldquo;Risk Factors&rdquo; or elsewhere
in this prospectus, which may cause our or our industry&rsquo;s actual results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment.
New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of
all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ
materially from those contained in any forward-looking statements. All forward-looking statements included in this document are
based on information available to us on the date hereof, and we assumes no obligation to update any such forward-looking statements.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">You should not place undue reliance on
any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities,
you should be aware that the occurrence of the events described in the section entitled &ldquo;Risk Factors&rdquo; and elsewhere
in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required
by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus
to conform our statements to actual results or changed expectations.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We plan to retain any earnings for the
foreseeable future for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors
and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors
deems relevant. In addition, our credit facility restricts our ability to pay dividends.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each holder of our 8% preferred stock,
in preference and priority to the holders of all other classes of stock, shall be entitled to receive, with respect to each share
of 8% preferred stock, dividends, commencing from the date of issuance of such share of preferred stock, at the rate of eight percent
(8%) per annum. The 8% preferred stock dividends are cumulative, whether or not earned or declared, and are to be paid by us quarterly
in arrears on the first business day of January, April, July and October in each year. The 8% preferred stock dividends are to
be paid to each holder of 8% preferred stock in cash out of legally available funds. The 8% preferred stock dividends may also
be paid in shares of common stock under certain circumstances.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We will not receive any of the proceeds
from the sale of the shares and warrants described in this prospectus. However, we may receive up to $10,301,634 upon the exercise
of the warrants if the holders exercise them for cash. If some or all of the warrants are exercised, the money we receive will
be used for general corporate purposes, including working capital requirements.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are not selling any of the shares of our common stock or
8% preferred stock in this offering. All of the shares sold in this offering will be held by the selling stockholders at the time
of the sale, so that no dilution will result from the sale of the shares.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our common stock will be a penny stock,
therefore, trading in our securities is subject to penny stock considerations. Broker-dealer practices in connection with transactions
in &ldquo;penny stocks&rdquo; are regulated by certain penny stock rules adopted by the SEC.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ
system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer&rsquo;s account. The broker-dealer must also make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser&rsquo;s written agreement to the transaction. These requirements
may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject
to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers
from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These
requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common
stock.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The common shares being offered for resale
by the selling stockholders consist of 39,144,590 shares of our common stock that are issued and outstanding, including up to (i)
8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii) 441,275
shares of common stock, par value $0.0001 per share, issuable to the selling stockholders as payment for any dividends on the 8%
preferred stock, (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our common stock
issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share, (v) 2,700,006
shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise price of
$0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling stockholders
at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the Series D warrants
held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common stock issuable
upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share, and (ix) 890,429
shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at an exercise price
of $0.50 per share. These holders include investors in our private placements as of (A) November 8, 2011 and December 15, 2011
for the sale of an aggregate of (i) 5,400,012 shares of common stock, (ii) Series A warrants to purchase 2,700,006 shares of common
stock and (iii) Series B warrants to purchase 2,700,006 shares of common stock, and (B) May 31, 2012 for the sale of units consisting
of an aggregate of (i) 8,904,287 shares of 8% preferred stock, (ii) Series C warrants <FONT STYLE="color: black; background-color: white">to
purchase 8,904,287 shares of common stock</FONT>, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock, and
(iv) Series E warrants to purchase up to 4,452,144 shares of common stock.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table sets forth certain
information regarding the selling stockholders and the shares offered by them in this prospectus. Each selling stockholder&rsquo;s
percentage of ownership is based upon (i) 69,002,253 shares of common stock outstanding and (ii) 8,904,287 share of 8% preferred
stock outstanding, as of June 11, 2012.</P>

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

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

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid; text-align: left; vertical-align: bottom">Name of Selling Stockholder</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Shares<BR>Beneficially<BR>Owned prior to<BR>Offering</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Percentage<BR>Beneficially<BR>Owned prior to<BR>Offering</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Shares to Offer (1)</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Shares<BR>Beneficially<BR>Owned after<BR>Offering</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">&nbsp;Percentage<BR>Beneficially<BR>Owned After<BR>Offering</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="width: 34%">Amir Mireskandri (2)</TD>
    <TD STYLE="width: 12%; text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 19,316,719</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">28.0%</TD>
    <TD NOWRAP STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,706,134</TD>
    <TD STYLE="width: 2%; text-align: right">&nbsp;(3)</TD>
    <TD STYLE="width: 12%; text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 17,610,585</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: right">25.5%</TD></TR>
<TR STYLE="background-color: White">
    <TD>Black Mountain Equities, Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 435,652</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 435,652</TD>
    <TD STYLE="text-align: right">&nbsp;(4)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Braden Richter (5)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,685,652</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.9%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;435,652</TD>
    <TD STYLE="text-align: right">&nbsp;(6)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,250,000</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.3%</TD></TR>
<TR STYLE="background-color: White">
    <TD>Capital Ventures International</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,622,620</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">3.8%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,622,620</TD>
    <TD STYLE="text-align: right">&nbsp;(7)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Core Energy Enterprises, Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,004</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.4%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,000</TD>
    <TD STYLE="text-align: right">&nbsp;(8)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Cranshire Capital Master Fund, Ltd.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,306,955</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.9%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,306,955</TD>
    <TD STYLE="text-align: right">&nbsp;(9)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>David S. Nagelberg</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 874,990</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1.3%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;699,988</TD>
    <TD STYLE="text-align: right">&nbsp;(10)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 175,002</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Equity Highrise Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 916,671</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1.3%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,004</TD>
    <TD STYLE="text-align: right">&nbsp;(11)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 416,667</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Erick Richardson</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 435,652</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 435,652</TD>
    <TD STYLE="text-align: right">&nbsp;(12)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>FireRock Capital, Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,439,988</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.5%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 435,652</TD>
    <TD STYLE="text-align: right">&nbsp;(13)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,004,336</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2.9%</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>HCP Opportunity Fund, L.P.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 731,894</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.1%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 731,894</TD>
    <TD STYLE="text-align: right">&nbsp;(14)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Huttner 1999 Partnership Ltd.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,549,125</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6.6%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,844,126</TD>
    <TD STYLE="text-align: right">&nbsp;(15)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 704,999</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.0%</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Jeff A. Sater</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,004</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,004</TD>
    <TD STYLE="text-align: right">&nbsp;(16)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Jeff Lamont</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,003</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(17)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Jinsun, LLC</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,600,066</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5.2%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,101,733</TD>
    <TD STYLE="text-align: right">&nbsp;(18)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,498,333</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.6%</TD></TR>
<TR STYLE="background-color: White">
    <TD>Jonathan Camarillo Trust</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,313,548</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.9%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 980,214</TD>
    <TD STYLE="text-align: right">&nbsp;(19)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;333,333</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Joseph R. Lee</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,004</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,004</TD>
    <TD STYLE="text-align: right">&nbsp;(20)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Kay Holdings, Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,995</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 99,996</TD>
    <TD STYLE="text-align: right">&nbsp;(21)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Kevin Lisman</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,003</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(22)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Khaled Alattar (23)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,811,578</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">8.4%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 965,168</TD>
    <TD STYLE="text-align: right">&nbsp;(24)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,846,410</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">7.0%</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Kingsbrook Opportunities Master&nbsp; Fund LP</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 871,305</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.3%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 871,305</TD>
    <TD STYLE="text-align: right">&nbsp;(25)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Lance Baral</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 205,870</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 199,988</TD>
    <TD STYLE="text-align: right">&nbsp;(26)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,882</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Lee Bear I, LLC</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 783,336</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1.1%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(27)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 533,332</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Mark Trotter</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 725,014</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">1.1%</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 725,012</TD>
    <TD STYLE="text-align: right">&nbsp;(28)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Market Byte LLC Defined Benefit &amp; Trust</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,003</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(29)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Maxim Group LLC</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,368,457</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.4%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,012,343</TD>
    <TD STYLE="text-align: right">&nbsp;(30)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,356,114</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2.0%</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Next View Capital LP</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,476,496</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5.0%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 3,476,496</TD>
    <TD STYLE="text-align: right">&nbsp;(31)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Octagon Capital Partners LP</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 871,302</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.3%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 871,302</TD>
    <TD STYLE="text-align: right">&nbsp;(32)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Pergament Multi-Strategy Opportunities, LP</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,713,021</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12.6%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,713,021</TD>
    <TD STYLE="text-align: right">&nbsp;(33)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Robert Gleckman</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,002</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,000</TD>
    <TD STYLE="text-align: right">&nbsp;(34)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Robert Klinek $ Susan Pack JTWROS</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,004</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.4%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000,000</TD>
    <TD STYLE="text-align: right">&nbsp;(35)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Schottenstein Capital Partners, L.P.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 261,390</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 261,390</TD>
    <TD STYLE="text-align: right">&nbsp;(36)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Sean Crowley</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;500,002</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 500,000</TD>
    <TD STYLE="text-align: right">&nbsp;(37)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Silverrock II, Ltd.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,056,114</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.5%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 522,781</TD>
    <TD STYLE="text-align: right">&nbsp;(38)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 533,333</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Sun Bear, LLC</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 783,336</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1.1%</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(39)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 533,332</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Sunrise Securities, Inc.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,683,300</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.9%</TD>
    <TD NOWRAP>&nbsp;(v)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 178,086</TD>
    <TD STYLE="text-align: right">&nbsp;(40)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,504,314</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3.6%</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD>Thomas Hudson</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,003</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(41)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: White">
    <TD>Warberg Opportunistic Trading Fund L.P.</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 261,390</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 261,390</TD>
    <TD STYLE="text-align: right">&nbsp;(42)</TD>
    <TD STYLE="text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">*</TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">William W. Bartlett, Jr.</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,003</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">*</TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250,004</TD>
    <TD STYLE="text-align: right">&nbsp;(43)</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; -&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">*</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;Total</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 75,451,471</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right">&nbsp;69,002,253</TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right">&nbsp;&nbsp; 39,144,590</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right">&nbsp;&nbsp; 36,305,972</TD>
    <TD>&nbsp;</TD>
    <TD NOWRAP>&nbsp;</TD></TR>
</TABLE>


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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">* Less than 1%</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD STYLE="text-align: justify">Includes the shares of common stock and the shares underlying the warrants issued to investors
in Private Placements that closed on November 8, 2011, December 15, 2011, and May 31, 2012, as well as common stock and the shares
underlying the warrants issued to the placement agent in such financings.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD STYLE="text-align: justify">Mr. Mireskandri is our Chairman of the Board. The shares held by Mr. Mireskandri are restricted
stock subject to a Lock-Out/Leak Out Agreement dated November 8, 2011. The shares are restricted for nine months from November
8, 2011. Mr. Mireskandri&rsquo;s shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement
the shares are restricted until December 31, 2012.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD STYLE="text-align: justify">Includes (i) 417,416 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 208,708 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 208,708
shares of common stock issuable upon the exercise of the Series B Warrant, (iv) 285,714 shares of common stock issuable upon the
conversion of the 8% preferred stock, (v) 285,714 shares of common stock issuable upon the exercise of the Series C Warrant, (vi)
142,857 shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 142,857 shares of common stock issuable
upon the exercise of the Series E Warrant, and (viii) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred
stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(4)</TD><TD STYLE="text-align: justify">Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(5)</TD><TD STYLE="text-align: justify">Mr. Richter is our President, Chief Executive Officer and director. The shares held by Mr. Richter
are restricted stock subject to a Lock-Up Agreement dated November 8, 2011. The shares are restricted for 18 months from November
8, 2011. Mr. Richter&rsquo;s shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the
shares are restricted until December 31, 2012.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(6)</TD><TD STYLE="text-align: justify">Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(7)</TD><TD STYLE="text-align: justify">Includes (i) 860,000 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 860,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 430,000 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 430,000 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 42,620 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>



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

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

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

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(8)</TD><TD STYLE="text-align: justify">Includes (i) 500,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 250,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 250,000
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(9)</TD><TD STYLE="text-align: justify">Includes (i) 428,572 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 428,572 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 214,286 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 214,286 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 21,239 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(10)</TD><TD STYLE="text-align: justify">Includes (i) 349,994 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 174,997 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 174,997
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(11)</TD><TD STYLE="text-align: justify">Includes (i) 250,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(12)</TD><TD STYLE="text-align: justify">Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(13)</TD><TD STYLE="text-align: justify">Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
(v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock. Firerock Capital&rsquo;s shares are also
subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the shares are restricted until December 31, 2012.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(14)</TD><TD STYLE="text-align: justify">Includes (i) 240,000 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 240,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 120,000 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 120,000 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 11,894 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(15)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant, (iv) 1,178,572 shares of common stock issuable upon the conversion
of the 8% preferred stock, (v) 1,178,572 shares of common stock issuable upon the exercise of the Series C Warrant, (vi) 589,285
shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 589,285 shares of common stock issuable upon the
exercise of the Series E Warrant, and (v) 58,407 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(16)</TD><TD STYLE="text-align: justify">Includes (i) 250,001 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(17)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(18)</TD><TD STYLE="text-align: justify">Includes (i) 387,498 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 193,749 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 193,749
shares of common stock issuable upon the exercise of the Series B Warrant, (iv) 107,143 shares of common stock issuable upon the
conversion of the 8% preferred stock, (v) 107,143 shares of common stock issuable upon the exercise of the Series C Warrant, (vi)
53,571 shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 53,571 shares of common stock issuable
upon the exercise of the Series E Warrant, and (v) 5,310 shares of stock issuable upon payment of dividends on the 8% preferred
stock..</TD></TR></TABLE>



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

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

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    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(19)</TD><TD STYLE="text-align: justify">Includes (i) 321,429 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 321,429 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 160,714 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 160,714 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 15,929 shares of stock issuable upon payment of dividends on the 8% preferred stock..</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(20)</TD><TD STYLE="text-align: justify">Includes (i) 250,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(21)</TD><TD STYLE="text-align: justify">Includes (i) 49,998 shares of common stock purchased in the November 8, 2011 and December 15, 20011
private placements, (ii) 24,999 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 24,999 shares
of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(22)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(23)</TD><TD STYLE="text-align: justify">The shares held by Mr. Alattar are restricted stock subject to a Lock-Up Agreement dated November
8, 2011. The shares are restricted for 18 months from November 8, 2011.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(24)</TD><TD STYLE="text-align: justify">Includes (i) 482,584 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 241,292 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 241,292
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(25)</TD><TD STYLE="text-align: justify">Includes (i) 285,715 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 285,715 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 142,858 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 142,858 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(26)</TD><TD STYLE="text-align: justify">Includes (i) 99,994 shares of common stock purchased in the November 8, 2011 and December 15, 20011
private placements, (ii) 49,997 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 49,997 shares
of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(27)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(28)</TD><TD STYLE="text-align: justify">Includes (i) 362,506 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 181,253 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 181,253
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(29)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(30)</TD><TD STYLE="text-align: justify">Includes (i) 300,000 shares of common stock in fees, and (ii) 712,343 shares of common stock issuable
upon the exercise of the Maxim placement agent warrant. Maxim is a broker dealer.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(31)</TD><TD STYLE="text-align: justify">Includes (i) 1,140,000 shares of common stock issuable upon the conversion of the 8% preferred
stock, (ii) 1,140,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 570,000 shares of common
stock issuable upon the exercise of the Series D Warrant, (iv) 570,000 shares of common stock issuable upon the exercise of the
Series E Warrant, and (v) 56,496 shares of stock issuable upon payment of dividends on the 8% preferred stock..</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(32)</TD><TD STYLE="text-align: justify">Includes (i) 285,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 285,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 142,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 142,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred stock..</TD></TR></TABLE>



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

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(33)</TD><TD STYLE="text-align: justify">Includes (i) 2,857,143 shares of common stock issuable upon the conversion of the 8% preferred
stock, (ii) 2,857,143 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 1,428,571 shares of common
stock issuable upon the exercise of the Series D Warrant, (iv) 1,428,571 shares of common stock issuable upon the exercise of the
Series E Warrant, and (v) 141,593 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(34)</TD><TD STYLE="text-align: justify">Includes (i) 250,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,000
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(35)</TD><TD STYLE="text-align: justify">Includes (i) 500,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 250,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 250,000
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(36)</TD><TD STYLE="text-align: justify">Includes (i) 85,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 85,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 42,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 42,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 4,248 shares of stock issuable upon payment of dividends on the 8% preferred stock..</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(37)</TD><TD STYLE="text-align: justify">Includes (i) 250,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,000
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(38)</TD><TD STYLE="text-align: justify">Includes (i) 171,429 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 171,429 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 85,714 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 85,714 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 8,496 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(39)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(40)</TD><TD STYLE="text-align: justify">Includes 178,086 shares of common stock issuable upon the exercise of the Sunrise placement agent
warrant for placement agent fees in connection with 8% preferred stock offering that closed on May 31, 2012. Sunrise Securities&rsquo;
shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the shares are restricted until
December 31, 2012. Sunrise is a broker-dealer.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(41)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(42)</TD><TD STYLE="text-align: justify">Includes (i) 85,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 85,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 42,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 42,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 4,248 shares of stock issuable upon payment of dividends on the 8% preferred stock.</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(43)</TD><TD STYLE="text-align: justify">Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.</TD></TR></TABLE>



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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Except as disclosed in the table above, to our knowledge, none
of the selling stockholders or beneficial owners:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD>has had a material relationship with us other than as a stockholder at any time within the past three years;</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD>has ever been one of our officers or directors or an officer or director of our affiliates; or</TD></TR></TABLE>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD>are broker-dealers or affiliated with broker-dealers.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">With respect to those selling stockholders
noted above who are or were affiliated with registered broker-dealers, each has represented to us that the shares being registered
for resale were purchased in the ordinary course of business and, at the time of purchase, such selling stockholder had no agreements
or understandings, directly or indirectly, with any person to distribute the shares.</P>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a &ldquo;flash sale&rdquo;
or &ldquo;daily deal&rdquo; at deep discounts to retail prices.&nbsp;&nbsp;In January 2012, our launched our website www.Luxeyard.com
and began operations. We launched with the product line of home goods and furniture. On March 27, 2012, we launched LuxeStyle apparel
line. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. We recently expanded into
apparel and accessories. &nbsp;&nbsp;As our member base and merchant selection increase, we expect to expand our offerings to include
other consumer goods such as travel, gourmet food and beverages, consumer services events and gift cards.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each week we conduct several &ldquo;flash
sale&rdquo; events on our website in which we feature merchandise at steep discounts to suggested retail prices.&nbsp;&nbsp;At
the beginning of each event, members receive an email describing the featured products and directing them to our website to participate.&nbsp;&nbsp;We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to flash sales, we also feature
a &ldquo;Daily Deal&rdquo; whereby we offer a single product on our website for a 24 hour period.&nbsp;&nbsp;Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.&nbsp;&nbsp;Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.&nbsp;&nbsp;In
some cases, when our Group Buy feature is active, as more members participate in the deal, the purchase price decreases.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant&rsquo;s location to the member.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April we began a Business to Business program through which
we source containers of goods and sell them to retailers. The retailers are offered products prior to the arrival of the container
shipments and any unsold items from the container shipment are then offered on our website.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We operate in an extremely competitive
&ldquo;flash sales&rdquo; space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company&rsquo;s ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Our Corporate History and Background</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We incorporated under the laws of the Delaware
on December 31, 2007 under name &ldquo;Top Gear, Inc.&rdquo; From inception until the closing of the securities exchange (&ldquo;Securities
Exchange&rdquo;) with LY Retail, LLC, a Texas limited liability company (&ldquo;LY Retail-Texas&rdquo;) on November 8, 2011, we
sought to develop and commercialize a kosher certification service with a goal of becoming a leading kosher food certification
organization.&nbsp;&nbsp;During that time, we had no revenue and our operations were limited to capital formation, organization
and development of our business plan.&nbsp;&nbsp;As a result of the Securities Exchange, we ceased our prior operations and we
now operate as an e-commerce marketplace that connects merchants to consumers by offering luxury goods and services at a discount.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">LY Retail-Texas was organized as a limited
liability company under the laws of Texas on April 20, 2011. Immediately prior to the closing of the Securities Exchange, Amir
Mireskandari and Khaled Alattar were the members of LY Retail-Texas.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011 and concurrently with
the Securities Exchange transaction, we formed a wholly owned subsidiary under name LY Retail, LLC (&ldquo;LY Retail-CA&rdquo;)
in the State of California. All of the operating activity of the Company was transferred to LY Retail-CA and LY Retail-Texas ceased
all activity.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Acquisition of LY Retail-Texas</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we completed the Securities
Exchange whereby we acquired all of the issued and outstanding membership interests of LY Retail-Texas in exchange for 30,349,998
shares of our common stock which shares constituted approximately 52.43% of our issued and outstanding shares&nbsp;of common stock&nbsp;as
of and immediately after the consummation of the Securities Exchange. As a result of the Securities Exchange, LY Retail-Texas became
our<B>&nbsp;</B>wholly owned subsidiary and Amir Mireskandari and Khaled Alattar became our principal stockholders. The Securities
Exchange was treated as a recapitalization effected through a securities exchange, with LY Retail-Texas as the accounting acquirer
and the Company the accounting acquiree.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Reorganization and Spin-Out</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011 and immediately prior
to the Securities Exchange, we (i) entered into a contribution and assumption agreement (the &ldquo;Contribution and Assumption
Agreement&rdquo;) with TGRE SubCo, Inc., a Delaware corporation formed as our wholly owned subsidiary for the purposes of spinning
out the operations of Top Gear, Inc. (&ldquo;SpinCo&rdquo;) pursuant to which we contributed all of our assets to SpinCo and SpinCo
assumed all of our debts and other liabilities (the &ldquo;Reorganization&rdquo;); and (ii) immediately following the Reorganization,
we entered into an agreement of sale (the &ldquo;Agreement of Sale&rdquo;) with Omri Amos Shalom (&ldquo;Shalom&rdquo;) and Akiva
Bergman (&ldquo;Bergman&rdquo;), our former principal shareholders, pursuant to which we sold to Shalom and Bergman all of our
interest in SpinCo in exchange for a total of 119,000,000 shares of our common stock held by Shalom and Bergman (the &ldquo;Spin-Out&rdquo;).&nbsp;&nbsp;The
shares of common stock acquired from Shalom and Bergman in the Spin-Out were cancelled following the Securities Exchange.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>November 2011 Equity Offering</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011 and immediately following
the Securities Exchange, we completed a private offering of units consisting of an aggregate of (i) 3,150,012 shares of our common
stock, (ii) Series A warrants <FONT STYLE="background-color: white">to purchase 1,574,998</FONT> <FONT STYLE="background-color: white">shares
of common stock which have a five-year term and an initial per share exercise price of $</FONT>0.30, subject to adjustment as described
below (the &ldquo;Series A Warrants&rdquo;), and (iii) Series B warrants <FONT STYLE="background-color: white">to purchase 1,574,998</FONT>
<FONT STYLE="background-color: white">shares of common stock which have a five-year term and an initial per share exercise price
of $</FONT>0.60, subject to adjustment as described below (the &ldquo;Series B Warrants&rdquo;).&nbsp;&nbsp;The price per unit
was $0.20 for an aggregate purchase price of approximately $630,000.&nbsp;&nbsp;As described below, approximately $217,500 of the
Purchase Price was paid via the delivery to the Company of promissory notes previously issued by LY Retail-Texas to certain of
its bridge investors (which such investors included the LY Retail-Texas Members).</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif"><I>Subscription Agreement. </I>The units
were offered and sold to the subscribers in the offering pursuant to a subscription agreement dated as of November 8, 2011. </FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Exchange of&nbsp;Bridge Notes<I>.</I>&nbsp;&nbsp;Certain
of the subscribers (each, a &ldquo;Bridge Investor&rdquo; and collectively the &ldquo;Bridge Investors&rdquo;) delivered promissory
notes issued by LY Retail-Texas prior to the Securities Exchange (each, a &ldquo;Bridge Note&rdquo; and collectively the &ldquo;Bridge
Notes&rdquo;) as payment of such Bridge Investor&rsquo;s purchase price for the units.&nbsp;&nbsp;To the extent the principal amount
of a Bridge Investor&rsquo;s Bridge Note was greater than such Bridge Investor&rsquo;s purchase price for the units, the Company,
on behalf of LY Retail-Texas, paid the remaining principal amount of such Bridge Note from the proceeds of the offering.&nbsp;&nbsp;Accordingly,
Bridge Notes in the aggregate principal amount of $217,500 were exchanged for units in the offering and the Company paid $62,500
of the remaining principal amount of the Bridge Notes to the Bridge Investors out of the proceeds from the offering.&nbsp;&nbsp;As
a result, the Bridge Notes are deemed to be cancelled and are of no further force and effect.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Antidilution Protection<I>.</I>&nbsp;&nbsp;Subject
to certain exceptions, if at any time during the twelve (12) months following the closing of the offering the Company issues or
sells shares of its common stock at a price per share less than $0.30 (as adjusted for any stock dividend, stock split, stock combination
or other similar transaction), the Company is required to promptly thereafter issue to each subscriber following such new issuance
that number of shares of its common stock equal to the greater of (I) zero and (II) the difference of (i) the quotient of (x) such
subscriber&rsquo;s purchase price divided by (y) the price per share of the new issuance, less (ii) the number of shares of common
stock previously issued to such Subscriber pursuant to the Subscription Agreement (as adjusted for any stock dividend, stock split,
stock combination or other similar transaction).</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif"><I>Warrants. </I>The Series A
                                                                                                               Warrants have a five-year term and are exercisable for an aggregate of 1,574,998 shares of our common stock at an initial per
                                                                                                               share exercise price of $0.30, subject to adjustment as set forth below.&nbsp;&nbsp;The Series B Warrants have a five-year
                                                                                                               term and are exercisable for an aggregate of 1,574,998 shares of our common stock at an initial per share exercise price of
                                                                                                               $0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to certain adjustment, such as stock splits, combinations, dividends, distributions, reclassifications,
                                                                                                               mergers or other corporate changes.&nbsp;&nbsp;In addition, subject to certain exceptions, if at any time after the closing
                                                                                                               date, the Company issues or sells any shares of its common stock at a price per share less than the exercise price of the
                                                                                                               applicable warrant, then immediately after such new issuance, the exercise price of the applicable warrant then in effect
                                                                                                               shall be reduced to an amount equal to the price per share of such new issuance.&nbsp;&nbsp;If the warrants are not
                                                                                                               registered with the Securities Act, the warrants can be exercised on a cashless basis.</FONT></TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif"><I>Registration Rights Agreement. </I>In
connection with offering, we entered into a registration rights agreement with the subscribers granting the subscribers piggy-back
registration rights with respect to the shares and the shares of common stock underlying the warrants.</FONT></TD></TR></TABLE>

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

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<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif"><I>Lock-Up Agreements. </I>In connection
with offering, we entered into lock-up agreements with each of Braden Richter, our newly appointed President and Chief Executive
Officer and member of our Board of Directors, Kevin Walker, our newly appointed Chief Financial Officer, Chief Operating Officer
and&nbsp;Secretary, Jerry Wilkerson, our newly appointed Chief Technology and Information Officer, Joshua Thompson, our newly appointed
Chief Marketing Officer, and Khaled Alattar, one of our new principal stockholders, pursuant to which each of them agreed not to
transfer any of our capital stock held directly or indirectly by them for an eighteen month period following the closing of the
offering.&nbsp;&nbsp;In addition, we entered into a lock-up/leak-out agreement&nbsp;with Amir Mireskandari, our newly appointed
Chairman of our Board of Directors and one of our new principal stockholders, pursuant to which&nbsp;he agreed not to transfer
any of our capital stock held directly or indirectly by&nbsp;him for a nine month period following the closing of the offering
and for the nine months thereafter to limit any transfers to 850,000 shares of common stock in any 30 day period and 170,000 shares
of common stock on any single day.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>December 2011 Equity Offering</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 15, 2011 we completed a
private offering of units consisting of an aggregate of (i) 2,250,016 shares of our common stock, (ii) Series A Warrants <FONT STYLE="background-color: white">to
purchase 1,125,008 shares of our common stock which have a five-year term and an initial per share exercise price of
$</FONT>0.30, subject to adjustment, and (iii) Series B Warrants <FONT STYLE="background-color: white">to purchase
1,125,008</FONT> <FONT STYLE="background-color: white">shares of our common stock which have a five-year term and an initial
per share exercise price of $</FONT>0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to adjustment.&nbsp;&nbsp;The price per unit was $0.20 for an aggregate
purchase price of $450,000 (the &ldquo;Purchase Price&rdquo;). The subscribers are entitled to piggy-back registration rights
with respect to the shares and the shares of common stock underlying the Warrants and other similar rights as the offering
closed on November 8, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>January 2012 Term Note</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 25, 2012 we borrowed cash in
the amount $25,000 from one of our shareholders. The loan bears 10 % annual interest and has a maturity of April 20, 2012.&nbsp;&nbsp;The
loan is evidenced by a promissory note. This note was converted to a debenture in the April 2012 financing.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>April 2012 Convertible Debentures</U></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 24, 2012 we entered into several
Debenture Purchase Agreements with certain investors whereby we issued and sold to the investors 10% Convertible Debentures which
are convertible into shares of our common stock at a conversion price of $0.30 per share, subject to adjustment. The aggregate
original principal amount of all Convertible Debentures is $2,915,000. Based on the aggregate original principal amount sold, the
maximum number of common shares we may be required to issue is 9,716,667.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>May 2012 Equity Offering</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 31, 2012 we completed the sale of
units pursuant to a Securities Purchase Agreement dated May 24, 2012. The units sold in the offering consisted of an aggregate
of (i) 8,904,287 shares of our 8% preferred stock, (ii) Series C warrants <FONT STYLE="color: black; background-color: white">to
purchase 8,904,287 shares of our common stock which have a five-year term and an initial per share exercise price of $0.50</FONT>,
subject to adjustment, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock <FONT STYLE="color: black; background-color: white">which
have a 90-day term and an initial per share exercise price of $</FONT>0.35, subject to adjustment, and (iv) Series E warrants to
purchase up to 4,452,144 shares of common stock <FONT STYLE="color: black; background-color: white">which have a five-year term
and an initial per share exercise price of $</FONT>0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross
proceeds of approximately $3,116,500, which includes $225,000 from investors that converted existing debt into the offering. Maxim
Group LLC was the placement agent for the offering.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 30, 2011, the Board and the
shareholders representing more than 50% of our common stock approved a 1:17 forward split and change in the Company&rsquo;s name.
The forward split was declared effective by Financial Industry Regulatory Authority, or FINRA, as of February 8, 2012. All share
and per share amounts in this prospectus, and in the accompanying consolidated financial statements and notes thereto, reflect
the forward split for all periods presented.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 9, 2012, we filed a Certificate
of Amendment to our Articles of Incorporation to change the corporate name from &ldquo;Top Gear, Inc.&rdquo; to &ldquo;Luxeyard,
Inc.&rdquo; The amendment was effective as of January 9, 2012. In connection with the name change, we have applied for a new trading
symbol &ldquo;LUXR&rdquo; for the Company&rsquo;s common stock, which is quoted on the OTC Bulletin Board. Both the name change
and symbol change have been approved by FINRA and became effective as of February 13, 2012.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 22, 2012, LY Retail-CA completed
an asset purchase of eOpulence, LLC, a New York limited liability Company (&ldquo;eOpulence&rdquo;) for an aggregate purchase price
consisting of options to purchase 300,000 shares of the common stock of the Company under the Company&rsquo;s 2012 Stock Option
Plan at an exercise price of $0.30 per share. The options were issued to Antonio Lopez, the majority owner of eOpulence. We also
entered into a lock-up agreement with Mr. Lopez pursuant to which he agreed not to transfer any of the options, or the common shares
received as a result of his exercise of the options, for an eighteen month period following the closing of the transaction.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective May 2, 2012, the Company filed
a Certificate of Amendment to its Articles of Incorporation to increase the total number of authorized shares from one hundred
million (100,000,000) shares of which all were common stock, to five hundred fifty million (550,000,000) shares of which five hundred
million (500,000,000) shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check
preferred stock, par value $0.0001. The amendment was declared effective as of May 2, 2012.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We conduct weekly &ldquo;flash sale&rdquo;
events on our website in which we will feature merchandise from merchants at steep discounts to suggested retail prices.&nbsp;&nbsp;At
the beginning of each event, members will receive an email describing the featured products and directing them to our website to
participate.&nbsp;&nbsp;We list each event on the member homepage of our website.&nbsp;&nbsp;Each event will remain on our site
for three to five days, depending on demand and quantity offered.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to flash sales, we feature
a &ldquo;deal of the day&rdquo; whereby we will offer a single product on our website for a 24 hour period.&nbsp;&nbsp;Similar
to flash sales, our members will receive email notifications when deals commence and will be able to view ongoing deals on the
member homepage.&nbsp;&nbsp;Unlike other deal of the day models, members are not required to purchase a minimum number of products
before the deal becomes active.&nbsp;&nbsp;Instead, as more members participate in the deal, the purchase price will decrease.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Members will purchase products directly
through our website via credit card and, in most cases; products will ship directly from the merchant&rsquo;s location to the
member.&nbsp;&nbsp;We do not intend to function as a warehouse for any of the products we offer.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our objective is to become a premier web-based
group buying retailer of luxury products at deep discounts to retail prices. Key elements of our strategy include the following:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Acquire and Retain Members.&nbsp;&nbsp;</I>We
believe a strong member base is critical to the success of&nbsp;group buying platforms such as ours.&nbsp;&nbsp;We believe&nbsp;that
a large and loyal member base will enable us to attract merchants, expand our product offerings, negotiate better terms for our
deals and&nbsp;become more selective in our offerings.&nbsp;&nbsp;We will focus on member acquisition by sourcing members through
email, our website, social network campaigns and other channels. As of June 12, 2012 we had approximately 665,600 members.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Attract Merchants.&nbsp;&nbsp;</I>In
addition to a strong member base, we believe that attracting recognizable merchants is key to our success.&nbsp;&nbsp;We believe
that by offering products from recognizable merchants, we will be better able to acquire and retain members.&nbsp;&nbsp;In addition,
we believe products from recognizable merchants are more likely to result in higher sales volumes.&nbsp;&nbsp;We also believe that
featuring a variety of merchants will make our overall offerings more attractive to our members.&nbsp;&nbsp;We have negotiated
with merchants and we are featuring offerings from up to 15 different merchants upon the launch of our website.&nbsp;&nbsp;As our
member base grows, we intend to identify and&nbsp;feature additional merchants.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Expand Product Offerings.&nbsp;&nbsp;</I>Initially,
we focused our offerings on household goods and related items and launched woman&rsquo;s apparel in March. &nbsp;As our member
base and merchant selection increase, we plan to expand our offerings to include other items and services.&nbsp;&nbsp;We anticipate
that by offering a broad scope of products to our members, members will in turn make a greater proportion of their overall purchases
through us.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Low Cost Provider.</I><B>&nbsp;</B>As
an e-commerce market place, we do not suffer from high overhead costs associated with traditional brick-and-mortar retailers.&nbsp;&nbsp;Also,
unlike several of our competitors, we do not intent to hold inventory or incur warehousing costs.&nbsp;&nbsp;Instead, we expect
to depend on merchants to fulfill orders directly with our members.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are distributing our offerings directly
to members through email, our website, and social networks.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Email</I>.&nbsp;&nbsp;We will
send emails containing descriptions of each week&rsquo;s flash sales and each deal of the day.&nbsp;&nbsp;Members will be able
to link directly from the email to the deals on our website to learn more and participate.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Websites.&nbsp;&nbsp;</I>Visitors&nbsp;will
be&nbsp;prompted to register as a member when they first visit our website and thereafter use the website as a portal to view access
and participate in our deals.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Social Networks.&nbsp;&nbsp;</I>We
will publish our deals through various social networks such as Facebook and Twitter.&nbsp;&nbsp;Notifications will be tailored
to the particular format of each social networking platform.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have increased our visibility, and are
continuing to build our brand and source members through a variety of marketing initiatives, including search engine marketing,
directory listing, social media marketing, referral programs and affiliate marketing, &ldquo;pay per click&rdquo; programs, news
and reviews and email campaigns. We launched an extensive marketing campaign in November, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Search Engine Marketing.</I>
We intend to create an extensive keyword-rich home page and secondary pages to improve search engine rankings. We will first initiate
an in-depth market analysis from which will reveal how the target audience and competitors currently interact online, who the key
influencers are, and the ways to connect with our target audience in a transparent non-obtrusive fashion. Then we will seek to
develop an understanding of how our business model, our target market, our competition, and our specific goals intersect and interact.&nbsp;&nbsp;This
critical business intelligence will focus on current and future trends in our industry. During this intelligence gathering we will
also be able to specifically identify the underlying nature and extent of our business needs, competition, and desired outcome.&nbsp;&nbsp;In
addition we can identify any concerns we may have in regards to the types of development necessary for our web site, the effect
of the marketing on our brand name, when we can expect results, and will also allow us to lay the strategic foundation for our
ongoing social media marketing, pay per click and link building campaigns.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Social Media Marketing.</I>&nbsp;&nbsp;An
effective social media marketing strategy involves strategic business intelligence gathering and a clear understanding of our industry,
competitors and target market. Our social media identity and the venues in which we will create an extensive presence will be readily
identified once we have clearly identified our target market and desired marketing approach. We will infiltrate various social
media venues including but not limited to: social media sites such as Facebook and Twitter, trade organizations and associated
blogs, RSS directories, discussion boards and forums, news/social aggregate sites, mashups, microblogging, online video and photo
sharing, podcasting, product sharing, service sharing, public relations and social media releases, social networks, fan clubs,
group applications, widgets, events and Wikipedia, where we will develop an extensive network of link building, bookmarking and
tagging to our online destination. In the future we will also develop and utilize our internal forum so that our members can review
our deals on our website.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Link Building and Affiliate
Marketing.</I>&nbsp;&nbsp;We believe that one of the hardest parts of web marketing is building link recognition. Obtaining massive
numbers of relevant &ldquo;referral links&rdquo; has become one of the central focuses of web marketing strategy. The ideal mixture
of link building options will be selected to craft a customized link plan made for long run return on investment and high ranking
results. We plan to use the following methods to obtain more referral links, including directory submission, article submission,
social bookmarking, blog and forum review, affiliate / strategic partner links and forum activity.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Pay Per Click Marketing Solution</I>.&nbsp;&nbsp;Pay
per click and run of network keyword marketing solutions drive highly interested traffic that provides us with the member base
we require. By purchasing the proper keywords, we will be able to attract the value-added traffic to reach the quality traffic
that is actively looking for what we sell at the exact time they are looking to buy. We will utilize both top-tier and long-tail
keywords to identify potential traffic sources. We will then create closely related keyword groups and convert keyword groups into
advertisement groups. We create landing pages that are relevant to our keywords and advertisement text.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Directory Listing</I>. We
will submit the website to all available (both paid and unpaid) directories in order to increase our presence online, and the number
of back-links pointing to our site.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>News/Reviews/RSS</I>. We plan
to submit internally created and user driven and paid-for news articles, review and RSS feeds to associated websites, blogs and
news agencies to increase our audience and increase the number of referral links driving traffic to and increase the rankings of
our pages.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Email Campaigns</I>. We will
develop and increase our member base through internal member development and member email lists acquisition. These email campaign
will also alert existing members of currents events or sales to increase sales from our existing customers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Press Release. </I>We will
submit official press releases to appropriate agencies of all developments and milestones reach by us. This will increase our presence
online and increase our ranking in search engine positions.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our business operations are divided into
the following core functions:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Identification of Luxury Deals</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Sourcing</I>.&nbsp;&nbsp;We feature or plan to expand to
the following types of products for our website:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Volume Discount Items &ndash; From time
to time, merchants may have overstocked inventory or production lines that have excess capacity and therefore increase production
that can be consumed regularly. These products are mostly cataloged, photography ready and have a market based pricing. We seek
discounts of 40-60% of regular wholesale prices with a minimum number of units guaranteed by the merchant; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Discontinued Items &ndash; This category
primarily targets distributors.&nbsp;&nbsp;Products in this category may include excess inventory, retailer discontinued items
and seasonal items.&nbsp;&nbsp;We contact such vendors seeking to dispose of such items on a mass scale; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Original Equipment Manufacturers (OEM)
&ndash; Wesource products with established brands on an OEM basis, with a strong focus on the value proposition and at times exclusive
products for our website.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Sourcing Process.</I>&nbsp;&nbsp;The process of sourcing
our offerings includes the following:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Vendor Negotiations &ndash; Our team of
buyers will negotiate price reductions to regular wholesale prices based on commitments for product depth.&nbsp;&nbsp;We do not
offer products unless merchants are committed to significant price discounts.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Securing Product &ndash; Vendors commit
to availability of product when a product is featured. We will verify and confirm allocation or availability of products before
featuring the product in a deal.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Price Comparisons &ndash; Our sourcing
groups canvas retail and internet suppliers for price comparisons for similar products.&nbsp;&nbsp;We do not offer products unless
there is a substantial discount to similar products.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Vendor Agreements &ndash; Vendor agreements
play a crucial role in our business model. We leverage our group buying power to obtain extremely discounted pricing on luxury
items. We obtain agreements with our vendors before featuring the vendor&rsquo;s products on our website. We do not enter into
formal agreements with our vendors. Instead, we intend to source products through individual purchase orders.</FONT></TD></TR></TABLE>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We post deals on our website, via email
and on social network websites. Daily deals are automatically sent to our members, &ldquo;tweeted&rdquo; to our Twitter account,
and posted to our Facebook page.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Almost all items sold on our website are
shipped directly from vendors to our member customers. We coordinate deliveries through package and &ldquo;less than truckload&rdquo;
(LTL) delivery companies to achieve savings in rates for our members. Our member care department coordinates and monitors shipments
from vendors to member customers. Members will be able to track shipments through our website.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have a dedicated member care group with
two primary functions. One is to answer questions about products, procedures and our business philosophy.&nbsp;&nbsp;In addition,
our member care group monitors shipments, delivery problems and handles other aspects of post purchase issues that arise.&nbsp;&nbsp;All
customer returns are sent directly to suppliers.&nbsp;&nbsp;Member Care and Finance coordinate this process.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In the past few years, the number of group
buying sites has grown rapidly. The markets for the products that we offer are very competitive, are rapidly evolving and have
relatively low barriers to entry. In addition to other online retailers, we compete with the physical stores, catalogs and websites
of traditional offline retailers. Competition may increase in the future, which could require us to reduce prices, increase advertising
expenditures or take other actions that may have an adverse effect on our operating results. We believe that competition in our
market is based predominantly on:</P>

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

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We compete with a variety of group buying
websites such as GroupOn.com, Gilte.com, OneKingsLane.com and Woot.com.&nbsp;&nbsp;In addition we will compete with multi-category
retailers such as Google.com, Amazon.com, Overstock.com and Wal-Mart and specialty retailers or manufacturers. Many of our competitors
have greater brand recognition, longer operating histories, larger customer bases and significantly greater financial, marketing
and other resources than we do. New technologies and the continued enhancement of existing technologies also may increase competitive
pressures on our company.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We compete not only for members, but also
for favorable merchant selection and product allocations. Some of our competitors could enter into exclusive distribution arrangements
with our&nbsp;merchants and deny us access to their products, devote greater resources to marketing and promotional campaigns and
devote substantially more resources to their website and systems development than us. In addition, some merchants whose products
will be offered on our website may also sell their products directly to end-users.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We believe that we will enjoy the following
competitive advantages:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Our management team has a proven record
of success in launching internet startups and a successful experience in the home furnishings industry.&nbsp;&nbsp;Braden Richter,
our President and Chief Executive Officer, has been an entrepreneur for over twenty-five years.&nbsp;&nbsp;We believe his knowledge
of design and sales strategy gleaned from previous experience with leading U.S. furniture retailers will help us gain success in
the luxury group-buying markets and in our negotiations with merchants.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">We provide deeper discounts by delivering
higher sales volume to merchants, thereby lowering prices for our members.&nbsp;&nbsp;We negotiate merchandise prices based on
purchase or closeout volume and opportunity buys. Sourcing is price sensitive and low mark-up margins are strictly enforced, so
that members will be benefit from low prices on our products.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">We position our brand as a luxury website
and offer products on an &ldquo;exclusive&rdquo; or &ldquo;limited&rdquo; basis which we believe makes providers of high-end products
more comfortable in featuring their products on our website at reduced prices.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">To maximize sales and ensure positive
cash flow, we plan to leverage viral digital media marketing avenues with a particular emphasis on the social aspect of group buying.</FONT></TD></TR></TABLE>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 16, 2012, we announced a strategic
alliance with buyinvite, one of Australia's premier members-only private sale sites.&nbsp; Our two companies will be launching
joint sales events featuring each other's respective brands to a collective audience of over two million members.&nbsp; buyinvite&nbsp;is
one of Australia's leading flash retail websites with over 1.2 million members throughout Australia and New Zealand. It is the
only 100 percent Australian owned and operated shopping club.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For Luxeyard, the partnership represents
an international sales channel that extends its distribution to a new, scalable consumer marketplace. Under the agreement, buyinvite
will operate sales featuring products from Luxeyard, exposing its members to a wide range of U.S. designer apparel, accessories
and home furnishings.&nbsp;</P>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are subject to a number of laws and
regulations that affect companies generally and specifically those conducting business on the internet, many of which are still
evolving and could be interpreted in ways that could harm our business.&nbsp;&nbsp;<FONT STYLE="background-color: white">Existing
and future laws and regulations may impede our growth. These regulations and laws may cover taxation, privacy, data protection,
pricing, content, copyrights, distribution, mobile communications, electronic contracts and other communications, consumer protection,
web services, the provision of online payment services, unencumbered internet access to our services, the design and operation
of websites, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such
as property ownership, libel, and personal privacy apply to the internet, e-commerce, digital content and web services. Unfavorable
regulations and laws could diminish the demand for our products and services and increase our cost of doing business.</FONT></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our principal executive offices are located
in 8884 Venice Blvd., Los Angeles, CA 90034.&nbsp;&nbsp;As of the date of this prospectus, the properties listed below represented
our materially important facilities. We believe that our properties are generally suitable to meet our needs for the foreseeable
future. However, we will continue to seek additional space as needed to satisfy our growth.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: left; border-bottom: Black 1pt solid; vertical-align: bottom">Description&nbsp;of&nbsp;Use</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Square<BR> Footage</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Location</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Term</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Rent/Month</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 24%; text-align: left; vertical-align: top">Corporate office facilities</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">2,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: left">Marina Del Rey, CA</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 36%">From September 2011 through September 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">4,800</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; vertical-align: top">Warehouse and Office Facilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,313</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">Los Angeles, CA</TD><TD>&nbsp;</TD>
    <TD>March 1, 2012 to February 28, 2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">9,564</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; vertical-align: top">Warehouse and Office Facilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">Brooklyn , New York</TD><TD>&nbsp;</TD>
    <TD>March 15, 2012 to March 13, 2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,583</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; vertical-align: top">Corporate Apartment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">980</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">New York, New York</TD><TD>&nbsp;</TD>
    <TD>April 3, 2012 to April 2, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,695</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We regard the protection of our copyrights,
service marks, trademarks, trade secrets and other intellectual property rights as critical to our future success. We rely on various
intellectual property laws and contractual restrictions to protect our proprietary rights in products and services. We have acquired
and registered our domain names with regulatory bodies in an effort to protect these intellectual property rights. It is our policy
to enter into confidentiality and invention assignment agreements with our employees and contractors and nondisclosure agreements
with our suppliers and strategic partners in order to limit access to and disclosure of our proprietary information. We cannot
assure you that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient
to prevent misappropriation of our technology or to deter independent third-party development of similar technologies.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not have any trademarks as of the
date of this prospectus.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of June 13, 2012, we had 44 full-time
employees.&nbsp;From time to time, we may hire additional workers on a contract basis as the need arises.</P>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 2, 2012, the Company and Pacific
Capital Group, Inc. (&ldquo;PCG&rdquo;) executed a Memorandum of Understanding (the &ldquo;MOU&rdquo;) that contemplates PCG providing
consulting services to the Company in exchange for an option to purchase shares of the Company. &nbsp;In subsequent discussions
and email correspondence, the parties have considered various quantities of shares to be subject to purchase by PCG, and the most
recent amount under consideration was 2,000,000. &nbsp;In emails between the Company and PCG, both parties have discussed whether
&ldquo;the deal is dead&rdquo; without an investment from PCG and, to date, the parties have not resolved the number of shares
PCG is eligible to purchase.&nbsp; Accordingly, there are outstanding, unresolved disputes between the parties with respect to
the MOU related to: (i) whether the MOU constitutes a binding agreement and, if so, (ii) the number of option shares, if any, subject
to the MOU, and (iii) the scope of PCG&rsquo;s consulting services contemplated by the MOU.</P>

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our common stock trades on the OTCQB under
the symbol LUXR. Our common stock had been quoted on the OTC Bulletin Board since March 2, 2011. From March 2, 2011 until February
12, 2012, we traded under the symbol TGRE. Effective February 13, 2012, our symbol changed to LUXR based on the forward split and
name change. The following table sets forth the range of high and low bid quotations for the applicable period. These quotations
as reported by the OTC Bulletin Board reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not
necessarily represent actual transactions.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Bid Quotation</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">Financial Quarter Ended</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right; border-bottom: Black 1pt solid">High ($)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right; border-bottom: Black 1pt solid">Low ($)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%">Period April 1, 2012 to June 11, 2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2.16</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">0.62</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>March 31, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.90</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.50</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>September 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>June 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>March 31, 2011 (since March 2, 2011)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At June 13, 2012, there were 69,002,253
shares of our common stock outstanding. Our shares of common stock are held by approximately 92 stockholders of record. At June
13, 2012, there were 8,904,287 shares of our 8% preferred stock outstanding. Our shares of 8% preferred stock are held by 19 stockholders
of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners
of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have never declared or paid a cash dividend.
Any future decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future
earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the Board of Directors may deem relevant.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each holder of our 8% preferred stock,
in preference and priority to the holders of all other classes of stock, shall be entitled to receive, with respect to each share
of 8% preferred stock, dividends, commencing from the date of issuance of such share of 8% preferred stock, at the rate of eight
percent (8%) per annum. The 8% preferred stock dividends are cumulative, whether or not earned or declared, and are to be paid
by us quarterly in arrears on the first business day of January, April, July and October in each year. The 8% preferred stock dividends
are to be paid to each holder of 8% preferred stock in cash out of legally available funds. The 8% preferred stock dividends may
also be paid in shares of common stock under certain circumstances.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table summarizes our plan-based awards as of March
31, 2012.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Plan&nbsp;Category</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of<BR> Securities<BR> To&nbsp;Be&nbsp;Issued<BR> Upon Exercise&nbsp;of<BR> Outstanding<BR> Options,<BR> Warrants&nbsp;and<BR> Rights<BR> (a)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted-<BR> Average<BR> Exercise<BR> Price&nbsp;of<BR> Outstanding<BR> Options,<BR> Warrants<BR> and&nbsp;Rights<BR> (b)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of&nbsp;Securities<BR> Remaining Available <BR>For Future&nbsp;Issuance<BR> Under Equity<BR> Compensation<BR> Plans&nbsp;(Excluding<BR> Securities&nbsp;Reflected<BR> in Column&nbsp;(a))<BR> (c)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Equity compensation plans approved by security holders</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">11,909,382</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">0.25</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">1,095,618</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Equity compensation plans not approved by security holders:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,909,382</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.25</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,095,618</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MANAGEMENT&rsquo;S DISCUSSION&nbsp;AND
ANALYSIS OF FINANCIAL CONDITION</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>The following discussion and analysis
of the results of operations and financial condition for the fiscal years ended December 31, 2011 and 2010, as well as for the
three month period ended March 31, 2012, and should be read in conjunction with our financial statements, and the notes to those
financial statements that are included elsewhere in this Registration Statement.</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements
as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Registration Statement. We use words such as &ldquo;anticipate,&rdquo; &ldquo;estimate,&rdquo;
&ldquo;plan,&rdquo; &ldquo;project,&rdquo; &ldquo;continuing,&rdquo; &ldquo;ongoing,&rdquo; &ldquo;expect,&rdquo; &ldquo;believe,&rdquo;
&ldquo;intend,&rdquo; &ldquo;may,&rdquo; &ldquo;will,&rdquo; &ldquo;should,&rdquo; &ldquo;could,&rdquo; and similar expressions
to identify forward-looking statements.</I></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a &ldquo;flash sale&rdquo;
or &ldquo;daily deal&rdquo; at deep discounts to retail prices.&nbsp;&nbsp;In January 2012, our launched our website www.Luxeyard.com
and began operations. We launched with the product line of home goods and furniture. On March 27, 2012, we launched LuxeStyle apparel
line. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. We recently expanded into
apparel and accessories. &nbsp;&nbsp;As our member base and merchant selection increase, we expect to expand our offerings to include
other consumer goods such as travel, gourmet food and beverages, consumer services events and gift cards.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each week we conduct several &ldquo;flash
sale&rdquo; events on our website in which we feature merchandise at steep discounts to suggested retail prices.&nbsp;&nbsp;At
the beginning of each event, members receive an email describing the featured products and directing them to our website to participate.&nbsp;&nbsp;We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In addition to flash sales, we also feature
a &ldquo;Daily Deal&rdquo; whereby we offer a single product on our website for a 24 hour period.&nbsp;&nbsp;Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.&nbsp;&nbsp;Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.&nbsp;&nbsp;In
some cases, when our Group Buy feature is active, as more members participate in the deal, the purchase price decreases.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant&rsquo;s location to the member.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April we began a Business to Business
program through which we source containers of goods and sell them to retailers. The retailers are offered products prior to the
arrival of the container shipments and any unsold items from the container shipment are then offered on our website.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We operate in an extremely competitive
&ldquo;flash sales&rdquo; space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company&rsquo;s ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.</P>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>April 2012 Convertible Debentures</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On April 24, 2012 we entered into several
Debenture Purchase Agreements with certain investors whereby we issued and sold to the investors 10% Convertible Debentures which
are convertible into shares of our common stock at a conversion price of $0.30 per share, subject to adjustment. The aggregate
original principal amount of all Convertible Debentures is $2,915,000. Based on the aggregate original principal amount sold, the
maximum number of common shares we may be required to issue is 9,716,667.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><U>May 2012 Equity Offering</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 31, 2012 we completed the sale of
units pursuant to a Securities Purchase Agreement dated May 24, 2012. The units sold in the offering consisted of an aggregate
of (i) 8,904,287 shares of our 8% preferred stock, (ii) Series C warrants to purchase 8,904,287 shares of our common stock which
have a five-year term and an initial per share exercise price of $0.50, subject to adjustment, (iii) Series D warrants to purchase
up to 4,452,144 shares of common stock which have a 90-day term and an initial per share exercise price of $0.35, subject to adjustment,
and (iv) Series E warrants to purchase up to 4,452,144 shares of common stock which have a five-year term and an initial per share
exercise price of $0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross proceeds of approximately $3,116,500,
which includes $225,000 from investors that converted existing debt into the offering. Maxim Group LLC was the placement agent
for the offering.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective May 2, 2012, the Company filed
a Certificate of Amendment to its Articles of Incorporation to increase the total number of authorized shares from one hundred
million (100,000,000) shares of which all were common stock, to five hundred fifty million (550,000,000) shares of which five hundred
million (500,000,000) shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check
preferred stock, par value $0.0001. The amendment was declared effective as of May 2, 2012.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have successfully launched our web site
and our home furnishings and apparel divisions. Additionally, we have experienced significant growth in membership, which was approximately
665,600 on June 12, 2012. We are focused on strengthening our relationships with vendors/suppliers and forming strategic alliances
with other web-based merchants who act as distribution partners. &nbsp;During the next twelve months, we expect to take the following
steps in connection with the further development of our business:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Continue scaling our marketing campaign
to attract a high volume of quality members to our website. Marketing initiatives consist of search engine optimization, social
media marketing, referral and affiliate marketing programs, pay-per-click search and display advertising and public relations;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Expand upon our member relations and communication
activities, with email retention and activation campaigns, additional editorial content and Celebrity Trendsetter involvement that
will increase our site traffic and build our brand;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Continue to improve upon the ability for
our website to deliver a high-quality consumer ecommerce experience, the hallmark of which is access to luxury products at affordable
prices for our members;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Identify and partner with more merchants
whose products we want to feature on our website.&nbsp;&nbsp;We believe featuring a variety of merchants makes our marketplace
more attractive to members;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Expand our product offering to include
additional vertical market segments, which may include travel, gourmet food and beverages, consumer services, events and gift cards;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Acquire companies whose offerings are
complementary to our categories and accretive to our revenue. We believe the flash sale category is ripe for consolidation, and
as such we are in a position to pursue a strategic acquisition plan;</FONT></TD></TR></TABLE>

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

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

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

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

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



<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top"><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Establish new domestic and international
syndication partnerships with companies whose existing customer base can extend the distribution of our products;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Build on the momentum of our Concierge
Buying and Group Buy features, which currently differentiate us and we believe hold tremendous value as consumers increasingly
leverage their collective buying power to identify, share and pay for products at the intersection of social, mobile and ecommerce
technologies; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Expand our business-to-business operation
into a key market differentiator and one that will scale on the basis of our ability to source products for thousands of smaller
vendors.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Over the next twelve months, we anticipate
expenses of up to $9,604,248 in general, administrative and corporate expenses and we expect revenue of up to $14,512,311. The
extent of such expenses and revenues will depend upon the successful implementation of our financing strategy and the acceleration
of our business plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We raised approximately $1,080,000 in gross
proceeds during 2011 through two equity offerings, and we have raised approximately $6,031,500 through the offering of equity and
debt so far during 2012. We expect to continue to finance our operations primarily through existing cash, profits from normal operations
and equity and/or debt financing in the future.&nbsp;&nbsp;If we do not obtain additional funding, we will continue to operate
on a reduced budget until such time as more capital is raised. We believe that we could operate with our current cash on hand while
satisfying any shortfall in cash flow with income that will be generated after the launch of our website.&nbsp;&nbsp;However, to
effectively implement our business plan, we need to obtain financing.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If we obtain additional financing, we would
expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members, and increase
operations all of which we believe would result in the generation revenue and development of our business. We also plan to expand
our web presence by acquiring web-based merchants or by forming strategic alliances with other internet companies both domestic
and international.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Results of Operations for the Three Month Ended March
31, 2012</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the three months ended March 31,&nbsp;2012,
we had revenues of $155,089 compared to revenue of $2,038 at December 31, 2011. The increase is mainly brought about by the official
launch of our web site in January and the launch of our apparel line in February. Our net operating loss for March 31, 2012 was
$2,161,161 which was mainly brought about by advertising and marketing expenses of $620,417, increase in the number of our employees
from 11 to 40 as of March 31, 2012 and the recognition of an impairment loss of $192,753 on assets acquired from eOpulence, LLC.
Our net loss for the three months ended March 31, 2012 was $8,522,657 which includes a $6,294,694 derivative loss from our outstanding
warrants and the embedded conversion options in our Convertible Debentures since these qualified for derivative accounting treatment
as a result of reset provisions in the exercise/conversion prices of these financial instruments. As of March 31, 2012, we had
total current assets of $285,326 and total current liabilities of $340,519 compared to total current asset of $326,842 and total
current liabilities of $231,333 at December 31, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Results of Operations for the Year Ended December 31,
2011</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have conducted minimal operations during
the fiscal year ended December 31, 2011 and we have generated revenues of $2,038 during this period.&nbsp;&nbsp;We had net losses
of $1,038,447 for fiscal 2011. Our auditor has expressed doubt as to whether we will be able to continue to operate as going concern
due to the fact that we have had limited revenues since inception and will need to raise capital to further our operations.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of March 31, 2012 we had cash of $204,153
compared to cash of $304,400 (of which $150,000 was restricted) on December 31, 2011.&nbsp;&nbsp;Our primary uses of cash were
for marketing expenses, employee compensation, and working capital. The main sources of cash were from the proceeds from the private
offering of its securities and from the issuances of debt in the form of debentures. . The following trends are reasonably likely
to result in a material decrease in our liquidity over the near to long term:</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">An increase in working capital requirements,</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Our plans to acquire additional web-sites
and compatible businesses</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Infrastructure Improvements</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Addition of administrative and sales personnel
as the business grows,</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Increases in advertising, public relations
and sales promotions as we commence operations,</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Development of new members and market
initiation, and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">The cost of being a public company and
the continued increase in costs due to governmental compliance activities.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;The following summarizes the key components of the Company&rsquo;s
cash flows for the first quarter 2012 and for fiscal 2011:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Q1 2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fiscal&nbsp;2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: justify">Cash flows used in operating activities</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(1,965,485</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">(713,780</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Cash flows used for&nbsp; investing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,238</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(17,564</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: justify">Cash flows from financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,970,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">885,744</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Net increase in cash and cash equivalents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">49,753</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">154,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We plan to fund our activities during 2012
and beyond through the sale of debt or equity securities or bank financing. Under the terms of the private placements that we closed
in 2011 and 2012, we are subject to certain provisions, including participation rights and antidilution clauses, which could affect
our ability to obtain additional financing. We cannot be certain that such funding will be available on acceptable terms or available
at all. To the extent that we raise additional funds by issuing debt or equity securities or through bank financing, our stockholders
may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to significantly
scale back, or discontinue, our operations.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our financial statements have been prepared
on a going concern basis. As of March 31, 2012, we have generated minimal revenues since inception.&nbsp;&nbsp;We expect to finance
our operations primarily through our existing cash, our operations and any future financing.&nbsp;&nbsp;However, there exists substantial
doubt about our ability to continue as a going concern because we will be required to obtain additional capital in the future to
continue our operations and there is no assurance that we will be able to obtain such capital, through equity or debt financing,
or any combination thereof, or on satisfactory terms or at all. Additionally, no assurance can be given that any such financing,
if obtained, will be adequate to meet our capital needs. If adequate capital cannot be obtained on a timely basis and on satisfactory
terms, our operations would be materially negatively impacted. Therefore, there is substantial doubt as to our ability to continue
as a going concern. Our ability to complete additional offerings is dependent on the state of the debt and/or equity markets at
the time of any proposed offering, and such market&rsquo;s reception of the Company and the offering terms. There is no assurance
that capital in any form would be available to us, and if available, on terms and conditions that are acceptable.</P>

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.&nbsp;&nbsp;Actual results could differ from those estimates.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We consider cash on hand and demand deposits
with original maturities of three months or less as cash and cash equivalents for the purpose of the statement of cash flows. As
of March 31, 2012 we had $205,153 in cash compared to $154,400 in cash at December 31, 2011.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">The Company
accounts for share-based awards to employees in accordance with FASB ASC 718 &ldquo;<I>Stock Compensation&rdquo;</I>. </FONT>Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein </FONT>such awards are expensed over the period
in which the related services are rendered at their fair value.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not have any off balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment
in our securities.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In order to continue to protect and increase
shareholder value management believes that it may, from time to time, consider alternative management strategies to create value
for the company or additional revenues.&nbsp;&nbsp;Strategies to be reviewed may include acquisitions; roll-ups; strategic alliances;
joint ventures on large projects; and/or mergers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Management will only consider these options
where it believes the result would be to increase shareholder value while continuing the viability of the company.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our directors, executive officers and key
employees are listed below. The number of directors is determined by our board of directors. All directors hold office until the
next annual meeting of the board or until their successors have been duly elected and qualified. Officers are elected by the board
of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board
of directors.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, in connection with
the closing of the Securities Exchange, Shalom and Bergman resigned from our Board of Directors and as officers of the Company.&nbsp;&nbsp;Also
effective upon the closing of the Securities Exchange, Amir Mireskandari and Braden Richter&nbsp;were appointed to our Board of
Directors to fill the vacancies created by the resignations of Shalom and Bergman.&nbsp;&nbsp;In addition, our Board of Directors
appointed Mr. Richter to serve as our President and Chief Executive Officer, Mr. Walker as our Chief Financial Officer, Chief Operating
Officer and Secretary, Jerry Wilkerson as our Chief Technology and Information Officer and Joshua Thompson as our Chief Marketing
Officer, all effective immediately upon the closing of the Securities Exchange.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 20, 2011, the Company and Mr.
Kevin Walker mutually agreed upon the termination of Mr. Walker&rsquo;s employment as Chief Financial Officer, Chief Operating
Officer and Secretary of the Company. The Board of Directors of the Company approved the termination on February 8, 2012. There
was no disagreement between Mr. Walker and the Company on any matter relating to the Company&rsquo;s operations, policies or practices
that resulted in his termination as the Chief Financial Officer, Chief Operating Officer and Secretary of the Company.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 8, 2012, the Board appointed
Margot Ritcher as the Chief Financial Officer and Secretary and Steve Beauregard as the Chief Operating Officer of the Company
effective January 9, 2012 and December 1, 2011, respectively.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 12, 2012, the Board appointed
Jack Guerrero as Investment Relations Officer.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following sets forth information about our directors and
executive officers as of the date of this prospectus:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 22%; border-bottom: Black 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 4%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Age</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 53%; border-bottom: Black 1pt solid; font-weight: bold">Position</TD>
    <TD STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 18%; border-bottom: Black 1pt solid; font-weight: bold">Since</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom">Amir Mireskandari&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center">42&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Chairman&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">November 2011</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom">Braden Richter</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center">40</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">President, Chief Executive Officer and Director</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">November 2011</TD></TR>
<TR STYLE="background-color: White">
    <TD STYLE="vertical-align: bottom">Margot Ritcher</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center">62</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">Chief Financial Officer and Secretary</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">January 2012</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Steve Beauregard</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">47</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Operating Officer</TD>
    <TD>&nbsp;</TD>
    <TD>December 2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Jerry Wilkerson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">39</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Technology and Information Officer</TD>
    <TD>&nbsp;</TD>
    <TD>November 2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Joshua Thompson</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">34</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Marketing Officer</TD>
    <TD>&nbsp;</TD>
    <TD>November 2011</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Jack M. Guerrero</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">38</TD>
    <TD>&nbsp;</TD>
    <TD>Investment Relations Officer</TD>
    <TD>&nbsp;</TD>
    <TD>March 2012</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Amir Mireskandari</I></B> was appointed
as Chairman of our Board of Directors on November 8, 2011.&nbsp;&nbsp;Mr. Mireskandari was formerly the controlling member of our
subsidiary, LY Retail-Texas, since its formation.&nbsp;&nbsp;Mr. Mireskandari founded Miresco Investment Services in 1999 and currently
serves as its President and Chief Executive Officer.&nbsp;&nbsp;Miresco focuses on sales and distribution of home furnishings,
distressed asset and distressed retail operations.&nbsp;&nbsp;Mr. Mireskandari also serves as Chief Executive Officer of Retail
Management Partners, a company formed in 2010 for the purpose of operating the concessions of the high-end home furnishings, accessories,
rugs, and art departments of The Great Indoors, a division of Sears.&nbsp;&nbsp;Mr. Mireskandari is also a member of the Board
of Directors of The Lugano Group Incorporated, a FINRA broker-dealer that concentrates on frontier markets, which he co-founded
in 1995.&nbsp;&nbsp;The Lugano Group offers securities brokerage, financial advisory, and investment promotion services to global
institutions.&nbsp;&nbsp;Mr. Mireskandari also co serves as Chairman of the Board of Directors of Glenmont Ventures, a boutique
private equity firm he co-founded 2009.&nbsp;&nbsp;Mr. Mireskandari holds the FINRA General Securities Representative (Series 7)
and Principal (Series 24), Financial and Operations Principal (Series 28), and Uniform Securities Agent (Series 63) licenses. He
earned his BBA and MBA in International Business from George Washington University.&nbsp;&nbsp;He completed postgraduate studies
in Management at Harvard Business School.&nbsp;&nbsp;We believe Mr. Mireskandari&rsquo;s extensive experience in the luxury home
furnishings industry and his capital markets knowledge will enable him to provide valuable insight as we seek to implement our
business plan and raise capital to fund our operations.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Braden Richter</I></B> was appointed
President, Chief Executive Officer and Director of the Company on November 8, 2011.&nbsp;&nbsp;Mr. Richter has served as the President
and Chief Executive Officer of our subsidiary, LY Retail-Texas, since September 2011.&nbsp;&nbsp;Prior to his engagement by LY
Retail-Texas, Mr. Richter served as President, Chief Executive Officer and/or as a member of the boards of directors of several
privately held companies, including Archetype Design, Richter Furniture MFG and Richter Studio. He developed and personally designed
trendsetting brands while managing factories with up to 2500 employees.&nbsp;&nbsp;Mr. Richter currently serves on the board of
directors for Archetype Design, a company he founded in 2009 which has become one of the largest furniture manufactures on the
west coast.&nbsp;&nbsp;Mr. Richter is also a partner and acting merchandise director of Jaxon International, a retail company based
in Los Angeles.&nbsp;&nbsp;We believe Mr. Richter&rsquo;s twenty-year career in the home furnishing industry, his entrepreneurial
spirit and his extensive experience in product designs and sale strategy will enable him to provide strong leadership and strategic
vision to the Company.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Margot Ritcher</I></B> was appointed
as the Company&rsquo;s Chief Financial Officer and Secretary effective January 9, 2012. From August 2007 to January 2012, she served
as interim controller and management consultant of Arcadian Management Company where she was responsible for financial reporting,
interfacing with external CPA's and regulatory agencies, Tax and Regulatory compliance. Prior to Arcadian, Ms. Ritcher ran an executive
management consulting practice for companies including USA Broadband, CBRE Richard Ellis, People Support, Paycom, LLC, SpotRunner,
and Nextwave Telecommunications. She also served as Controller of DirecTV domestic and worked her way up to Vice President of Business
for DirecTV International. During her 9 year tenure, she helped take DirecTV from 20 employees and no revenue to over 2,000 employees
and $9 billion in revenues.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Margot began her career as a CPA for Coopers
and Lybrand and for Deloitte, Haskins and Sells in Tucson, Arizona.&nbsp; She has an MBA in Marketing from Regis University in
Denver, Colorado and she holds two undergraduate degrees in accounting and management information systems from the University of
Arizona.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Steve Beauregard</I></B> was appointed
as the Company&rsquo;s Chief Operating Officer and head of Emerging Categories effective December 1, 2011. Prior to joining the
Company, Mr. Beauregard was President and Founder of REGARD Solutions Corp, a successful mobile, social and eCommerce development
firm for multi-channel retailers and venture backed start-ups.&nbsp; He was the driving force behind bringing on key accounts such
as Sony Pictures, Coffee Bean &amp; Tea Leaf, J Hilburn, Ray-Ban, Wells Fargo, Harbor Freight Tools, DIRECTV, and Burlington Coat
Factory.&nbsp; In 2003, Mr. Beauregard was an early pioneer in offshore development opening a REGARD office Nagpur, India.&nbsp;
In 2007, he formed software incubator REGARD Ventures Solutions help early-stage entrepreneurs reach venture viability.&nbsp; Mr.
Beauregard was featured in Entrepreneur Magazine (9/07), is often quoted in trade rags, has spoken at international mobility conferences
and is a frequent guest speaker on entrepreneurship at numerous southern California universities including USC, UCLA and Pepperdine.
He holds two BS degrees in Computer Science and Accounting from Frostburg State University and studied Computer Engineering in
the Master&rsquo;s program at Johns Hopkins University.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Jerry Wilkerson</I></B> was appointed
Chief Technology and Information Officer of the Company on November 8, 2011.&nbsp;&nbsp;Mr. Wilkerson has served as chief technical
&amp; information officer of our subsidiary, LY Retail-Texas, since September 2011.&nbsp;&nbsp;He also owns his own retail ecommerce
business since 2002.&nbsp;&nbsp;Mr. Wilkerson brings us a wealth of knowledge and experiences in the web development and information
technology sector.&nbsp;&nbsp;Throughout his career, Mr. Wilkerson has been involved in various technology position and retail
management along with familiarity with several ecommerce platforms.&nbsp;&nbsp;Mr. Wilkerson has extensive Microsoft training along
with in depth information technology training.&nbsp;&nbsp;He has over twenty years&rsquo; experience in programming, focusing on
web design, since 1999.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Joshua Thompson</I></B> was appointed
Chief Marketing Officer of the Company on November 8, 2011.&nbsp;&nbsp;Mr. Thompson has served as chief marketing officer of our
subsidiary, LY Retail-Texas, since September 2011.&nbsp;&nbsp;He spent most of his early career in brand development and marketing
at Legal Match from May 2001 through 2011.&nbsp;&nbsp;Mr. Thompson has extensive experience in brand development and marketing
campaigns.&nbsp;&nbsp;He graduated from Humboldt State University with a Bachelor of Science degree in Business Administration
in 2000.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Jack M. Guerrero</I></B> was appointed
Investor Relations Officer of the Company on March 12, 2012. He is also serving as Vice President of Finance. From 2010 to prior
to joining the Company, he was an investment banker with William &amp; Henry Associates in Los Angeles, where he focused on mergers
&amp; acquisitions and sell-side advisory in the middle market. Between 2007-2010, Mr. Guerrero worked with the Transaction Advisory
Practice at Ernst &amp; Young LLP in San Francisco, where he managed financial due diligence for private equity firms and corporate
acquirers. Prior thereto, Mr. Guerrero was a Manager with the American Express Company and a practicing CPA with KPMG LLP. He received
a BA in Economics from Stanford University, and an MBA from Harvard Business School.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the asset purchase from
E-Opulence, Christian Vega was appointed the Chief of Business Develop of LY Retail-CA effective February 29, 2012. On March 12,
2012, we appointed Tony Winders as Executive Vice President of Revenue of LY Retail. We consider Mr. Vega and Mr. Winders as significant
employees of the Company.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 22%; border-bottom: Black 1pt solid; font-weight: bold">Name</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 4%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Age</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 53%; border-bottom: Black 1pt solid; font-weight: bold">Position</TD>
    <TD STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 18%; border-bottom: Black 1pt solid; font-weight: bold">Since</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Christian A Vega</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">24</TD>
    <TD>&nbsp;</TD>
    <TD>Chief of Business Development Officer of LY Retail-CA</TD>
    <TD>&nbsp;</TD>
    <TD>February 2012</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Tony Winders</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">43</TD>
    <TD>&nbsp;</TD>
    <TD>Executive Vice President of Revenue of LY Retail-CA</TD>
    <TD>&nbsp;</TD>
    <TD>March 2012</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Christian A Vega</I></B> became the
LY Retail-CA&rsquo;s Chief of Business Development on February 29, 2012. Prior to this Mr. Vega was the CEO of E-Opulence, a fashion
based flash sale ecommerce company. He was the founder and creative force both on the technology and brand development of the company.
Mr. Vega began his career with Cross Cultural Solution, volunteering for NGO in India. In 2008 Mr. Vega was Executive Manager of
Strategies and Accounts for Force Marketing where he opened their first office in Massachusetts and then expanded their territory
to New York and New Jersey. In 2009 Mr. Vega was an operations specialist at Mercedes distribution where he was heavily involved
on the logistics side of ecommerce, after which Mr. Vega was an associative consultant with the World Trade Center Memorial Museum,
opening and maintaining their first ever &ldquo;Preview&rdquo; site of the memorial museum until he founded eOpulence in October
2010. He studied Bio-Medical engineering at university but did not complete his degree as business opportunities and his entrepreneurial
spirit trumped his interest in medicine.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>Tony Winders</I></B> became Executive
Vice President of Revenue effective March 12, 2012. Prior to joining the company, Mr. Winders was vice president, marketing at
ValueClick, Inc. As a member of its media division management team from June, 2003 to November, 2010, his marketing leadership
helped establish the company as one of the largest and most respected display advertising and lead generation networks in the world.
He was previously vice president, sales and marketing at pay-per-click search engine Search123, which ValueClick acquired in 2003.
An early pioneer of online marketing and advertising, Mr. Winders co-founded InterActive Agency, Inc. (iAgency) in 1995, and served
as its president until 2002. At iAgency, he devised online marketing strategies for dozens of consumer entertainment, ecommerce
and technology brands, including Zappos.com, Coca Cola, Warner Bros. Studio Store, Universal Studios Online, SegaSoft, Symantec
and Hollywood Online. He began his career in public relations in the early 1990s as an account executive at Paladino &amp; Associates
Public Relations in Hollywood and then as director of client programs as at Murphy/O&rsquo;Brien Communications in Beverly Hills.
Mr. Winders holds a Bachelor of Science degree in public relations from the University of Central Missouri.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There are no family relationships among any of our officers
or directors.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Involvement in Certain Legal Proceedings</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">To the best of our knowledge, none of our current directors
or executive officers has, during the past ten years:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">been convicted in a criminal proceeding
or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">had any bankruptcy petition filed by or
against the business or property of the person, or of any partnership, corporation or business association of which he was a general
partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;</FONT></TD></TR></TABLE>

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

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

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

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

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



<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top"><TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">been subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority,
permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities,
futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged
in any such activity;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">been found by a court of competent jurisdiction
in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">been the subject of, or a party to, any
federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated
(not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or
state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">been the subject of, or a party to, any
sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.</FONT></TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Except as set forth in our discussion below
in &ldquo;Certain Relationships and Related Transactions,&rdquo; none of our directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The former members of our Board of Directors
adopted a Code of Ethics applicable to our principal executive, financial and accounting officers on January 13, 2011.&nbsp;&nbsp;Although
our newly appointed executive officers are subject to this Code of Ethics, the newly appointed members of our Board of Directors
intend to adopt of new Code of Ethics.&nbsp;&nbsp;However, no formal steps have been taken by the Board of Directors in this regard.</P>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table sets forth information
regarding each element of compensation that&nbsp;paid or awarded to&nbsp;the named executive officers for the years ended December
31, 2011 and December 31, 2010.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">Name&nbsp;and <BR>Principal&nbsp;Position</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 10pt">Year</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">Salary($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">Bonus</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">All&nbsp;Other
    <BR>Compensation <BR>($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 10pt">Total&nbsp;($)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 44%; text-align: left"><FONT STYLE="font-size: 10pt">Braden Richter</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 10pt">69,230</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 10pt">69,230</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">President and Chief Executive Officer</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Steve Beauregard</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5,770</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">5,770</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Chief Operating Officer</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Jerry Wilkerson</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">37,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">37,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Chief Technology and Information Officer</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Joshua Thompson</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">31,250</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">31,250</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Chief Marketing Officer</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Omri Amos Shalom</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Former Chief Executive Officer, Chief Financial</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Officer and Director</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Akiva Bergman</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Former Secretary and Director</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Kevin Walker</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2011</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">40,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">0</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">40,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">Former Chief Financial Officer, Chief Operating Officer and Secretary</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt">2010</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
</TABLE>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we entered into an
employment agreement with LY Retail-CA, and Braden Richter, as our President and Chief Executive Officer, effective November 23,
2011, for a period of five years until November 22, 2016. We agreed to pay a base salary of $300,000 per annum during the term
with an annual cumulative increase of not less than 4% and bonus under certain conditions. Pursuant to the agreement, Mr. Richter
was also granted an option to purchase 1,950,000 shares of our comment stock under the stock option plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Steve Beauregard, as our Chief Operating Officer, effective December 1, 2011, for a
period of three years until November 30, 2014. We agreed to pay a base salary of $175,000 per annum, provided that, if the Company
meets its fiscal goals for the previous year, Mr. Beauregard shall be paid the sum of $200,000 for the second year of the term
and $250,000 for the third year of the term. Mr. Beauregard will be also designated as a participant in the bonus plan of $300,000
which will be shared amongst the participants. Pursuant to the agreement, Mr. Beauregard was also granted an option to purchase
1,950,000 shares of our comment stock under the stock option plan.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Jerry Wilkerson, as our Chief Technology Officer, effective December 1, 2011, for a
period of three years until November 30, 2014. We agreed to pay a base salary of $150,000 per annum, provided that, if the Company
meets its fiscal goals for the previous year, Mr. Wilkerson shall be paid the sum of $200,000 for the second year of the term.
For each year thereafter, the Board shall review such base salary and shall provide a minimum of 4% annual increase in its discretion.
Mr. Wilkerson will be also designated as a participant in the bonus plan of $300,000 which will be shared amongst the participants.
Pursuant to the agreement, Mr. Wilkerson was also granted an option to purchase 1,950,000 shares of our comment stock under the
stock option plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Joshua Thompson, as our Chief Marketing Officer, effective December 1, 2011, for a period
of three years until November 30, 2014. We agreed to pay a base salary of $125,000 per annum with an annual cumulative increase
of not less than 4% at the discretion of the Board. Mr. Thompson will be also designated as a participant in the bonus plan of
$300,000 which will be shared amongst the participants. Pursuant to the agreement, Mr. Thompson was also granted an option to purchase
1,950,000 shares of our comment stock under the stock option plan.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 27, 2012, we entered into an
employment agreement with LY Retail-CA and Christian Vega, as our LY Retail-CA&rsquo;s Chief of Business Development, effective
February 27, 2012, for a period of three years until February 20, 2015. We agreed to pay a base salary of $110,000 per annum during
the term with increase to $150,000 on attainment of certain milestones. Pursuant to the agreement, Mr. Vega was also granted an
option to purchase 200,000 shares of our common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 12, 2012, we entered into an employment
agreement with LY Retail-CA, and Tony Winders, as Executive Vice President of Revenue of LY Retail-CA, effective March 12, 2012,
for a period of three years until March 11, 2015. We agreed to pay a base salary of $120,000 per annum during the term with an
increase to $132,500 per annum based the attainment of certain milestones and an increase to $150,000 based on certain milestones.
Mr. Winders shall be designated as a participant in the Company&rsquo;s Key Employee Cash Bonus Plan. Such bonus pool of was raised
to from $300,000 to $500,000 with the addition of new participants. Pursuant to the agreement, Mr. Winders was also initially granted
an option to purchase 250,000 shares of our common stock and will be granted an additional 250,000 on attainment of certain milestone.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the agreements, all the above
executives are also entitled to other standard benefits such as insurance plan, vacation and reimbursement of reasonable out-of-pocket
expenses.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the termination of Kevin
Walker as our executive officer, we entered into a severance agreement with LY Retail-Texas and Kevin Walker on December 20, 2011
pursuant to which we agreed to pay to Mr. Walker any unpaid salary, unreimbursed expenses and a severance payment. The severance
payment equals to three months of Mr. Walker&rsquo;s base salary and is payable in two installments of $13,333.33 and $11,688 for
a sum of $38,352. In addition, Mr. Walker was granted an option to purchase 400,010 shares of our common stock under our stock
option plan.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Outstanding Equity Awards at Fiscal Year-End</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table summarizes the number
of securities underlying outstanding plan awards for each named executive officer as of December&nbsp;31, 2011.</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="17" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Option&nbsp;Awards</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="15" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Stock&nbsp;Awards</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Number&nbsp;of<BR>
    Securities<BR>
    Underlying<BR>
    Unexercised<BR>
    Options&nbsp;(#)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Number&nbsp;of<BR>
    Securities<BR>
    Underlying<BR>
    Unexercised<BR>
    Options&nbsp;(#)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Equity<BR>
    Incentive<BR>
    Plan<BR>
    Awards:<BR>
    Number&nbsp;of<BR>
    Securities<BR>
    Underlying<BR>
    Unexercised<BR>
    Unearned<BR>
    Options&nbsp;(#)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Option<BR>
    Exercise<BR>
    Price&nbsp;($)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt"><B>Option<BR>
    Expiration<BR>
    Date</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Number<BR>
    of&nbsp;Shares<BR>
    or&nbsp;Units<BR>
    of&nbsp;Stock<BR>
    That<BR>
    Have&nbsp;Not<BR>
    Vested&nbsp;(#)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Market<BR>
    Value&nbsp;of<BR>
    Shares&nbsp;or<BR>
    Units&nbsp;of<BR>
    Stock<BR>
    That<BR>
    Have&nbsp;Not<BR>
    Vested&nbsp;($)<BR>
    (4)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Equity<BR>
    Incentive&nbsp;Plan<BR>
    Awards:<BR>
    Number&nbsp;of<BR>
    Unearned<BR>
    Shares,&nbsp;Units<BR>
    or&nbsp;Other<BR>
    Rights&nbsp;That<BR>
    Have&nbsp;Not<BR>
    Vested&nbsp;(#)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Equity<BR>
    Incentive&nbsp;Plan<BR>
    Awards:<BR>
    Market&nbsp;or<BR>
    Payout&nbsp;Value<BR>
    of&nbsp;Unearned<BR>
    Shares,&nbsp;Units<BR>
    or&nbsp;Other<BR>
    Rights&nbsp;That<BR>
    Have&nbsp;Not<BR>
    Vested&nbsp;($)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold"><FONT STYLE="font-size: 8pt"><B>Name</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Exercisable</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Unexercisable</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 11%"><FONT STYLE="font-size: 8pt">Braden Richter</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">1,950,000</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">1,300,000</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">$&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">0.20</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">10/1/21</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right; width: 7%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt">Joshua&nbsp;Thompson</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,950,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,300,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">$&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.20</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">9/26/21</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt">Jerry Wilkerson</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,950,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,300,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">$&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.20</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">9/26/21</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt">Steve Beauregard</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,950,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,300,000</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">$&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.20</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">11/1/21</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt">Kevin Walker</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">400,010</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">$&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.20</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">9/26/21</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>


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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has not compensated any of
its directors for service on the Board of Directors. Management directors are not compensated for their service as directors; however
they may receive compensation for their services as employees of the Company. The compensation received by our management directors
is shown in the &ldquo;Summary Compensation Table&rdquo; above.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>2012 Stock Option Plan</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 24, 2012, the Board and majority
shareholders of the Company approved the Luxeyard, Inc. 2012 Stock Option Plan (the &ldquo;Plan&rdquo;). The Plan gives us the
ability to grant stock options, restricted stock, stock appreciation rights (SARs), and other stock-based awards (collectively,
&ldquo;Awards&rdquo;) to employees or consultants of the Company or of any subsidiary of the Company and to non-employee members
of our advisory board or our Board of Directors or the board of directors of any of our subsidiaries. Our Board of Directors believes
that adoption of the Plan is in the best interests of our company and our stockholders because the ability to grant stock options
and make other stock-based awards under the Plan is an important factor in attracting, stimulating and retaining qualified and
distinguished personnel with proven ability and vision to serve as employees, officers, consultants or members of the Board of
Directors of our company and our subsidiaries, and to chart our course towards continued growth and financial success. Therefore,
our Board of Directors believes the Plan will be a key component of our compensation program.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of June 11, 2012, 1,095,618 shares of our common stock remained
available for future grants under the Plan.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table sets forth certain
information regarding our shares of common stock beneficially owned as of June 11, 2012 for (i) each stockholder known to be the
beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii)
all executive officers and directors as a group.&nbsp;&nbsp;A person is considered to beneficially own any shares: (i) over which
such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the
right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise.
Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive
officers is exercised solely by the beneficial owner or shared by the owner and the owner&rsquo;s spouse or children.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For purposes of this table, a person or
group of persons is deemed to have &ldquo;beneficial ownership&rdquo; of any shares of common stock that such person has the right
to acquire within 60 days of June 11, 2012.&nbsp;&nbsp;For purposes of computing the percentage of outstanding shares of our common
stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within
60 days of June 11, 2012 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.&nbsp;&nbsp;The inclusion herein of any shares listed as beneficially owned does not constitute an
admission of beneficial ownership.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Unless otherwise specified, the address
of each of the persons set forth below is in care of the Company, 8884 Venice Blvd., Los Angeles, CA 90034.</P>

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">Name&nbsp;of&nbsp;Beneficial&nbsp;Owner</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount&nbsp;and <BR>Nature <BR>of&nbsp;Beneficial <BR>Ownership</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Percent&nbsp;of <BR>Common&nbsp;Stock <BR>(1)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-style: italic; text-align: left">Executive Officers and Directors</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 68%; text-align: left">Amir Mireskandari (2)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">19,302,560,</TD><TD STYLE="width: 3%; text-align: left">(3)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">15.10</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Braden Richter (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">728,572</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Margot Ritcher</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">(5)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Steve Beauregard (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Jerry Wilkerson (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Joshua Thompson (4)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Jack M. Guerrero</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">(5)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">*</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">All directors and executive officers as a group (7 persons)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,031,131</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25.42</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-style: italic; text-align: left">Other 5% Shareholders</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Huttner 1999 Partnership Ltd. (6) <BR>22 Latigo Road <BR>Durango, Co 81301</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,553,218</TD><TD STYLE="text-align: left">(6)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5.78</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pergament Multi-Strategy Opportunities LP (7)</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">237 Park Avenue, 9<SUP>th</SUP> Floor</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">New York, NY 10017</P></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,571,429</TD><TD STYLE="text-align: left">(7)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10.88</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>



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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">* Less than 1%&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) Based on 69,002,253 shares of common
stock issued and outstanding June13, 2012 and 8,904,287 shares of preferred stock issued and outstanding as of June 13, 2012</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(2) In connection with the private placement
closed on November 8, 2011, Mr. Mireskandari entered into a lock-up/leak-out agreement with the Company pursuant to which&nbsp;he
is restricted from offering, pledging, selling, contracting to sell, selling any option or contracting to purchase, lend, transfer
or otherwise dispose of any shares of common stock of the Company or any other securities convertible or exercisable for shares
of the Company&rsquo;s common stock for the nine month period following the closing of the offering and for an additional nine
months following such period, to limit any transfers to 850,000 shares of common stock in any 30 day period and 170,000 shares
of common stock on any single day.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(3) Includes (i) 17,944,668 shares
of common stock, (ii) 83,708 shares of common stock underlying Series A Warrants and 167,416 shares of common stock underlying
Series B Warrants issued to Mr. Mireskandari in the private placement closed on November 8, 2011 that are immediately exercisable,
(iii) 125,000 shares of common stock underlying Series A Warrants and 250,000 shares of common stock underlying Series B Warrants
issued to Mr. Mireskandari in the private placement closed on December 15, 2011 that are immediately exercisable, (iv) 83,333
shares of common stock upon conversion of certain convertible debenture dated January 26, 2012, (v) 285,714 shares of preferred
stock issued in a private placement dated May 31, 2012, and (vi) 285,714 shares of common stock underlying Series C Warrants issued
in a private placement dated May 31, 2012, (vii) 142,857 shares of common stock underlying Series D Warrants issued in a private
placement dated May 31, 2012, and (viii) 142,857 shares of common stock underlying Series E Warrants issued in a private placement
dated May 31, 2012</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(4) Messrs. Richter, Beauregard, Wilkerson,
Thompson and Alattar&nbsp;entered into lock-up agreements with the Company pursuant to which each is restricted from offering,
pledging, selling, contracting to sell, selling any option or contracting to purchase, lend, transfer or otherwise dispose of any
shares of common stock of the Company or any other securities convertible or exercisable for shares of the Company&rsquo;s common
stock for a period of eighteen month.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(5) Includes vested shares granted under
the Company&rsquo;s 2012 Stock Option Plan and exercisable within 60 days.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(6) Richard Huttner has voting and control
power over the shares held by this entity. Includes (i) 580,001 shares of common stock, (ii) 62,501 shares of common stock underlying
Series A Warrants and 125,002 shares of common stock underlying Series B Warrants issued to Huttner 1999 Partnership Ltd in the
private placement closed on November 8, 2011 that are immediately exercisable,(iii) 250,000 shares of common stock upon conversion
of certain convertible debenture dated January 26, 201 (iv) 1,178,571 shares of preferred stock issued to Huttner 1999 Partnership
Ltd in the private placement closed May 31, 2012, (v) 1,178,571 shares of common stock underlying Series C Warrants issued in a
private placement dated May 31, 2012, (vii) 589,286 shares of common stock underlying Series D Warrants issued in a private placement
dated May 31, 2012, and (viii) 589,286 shares of common stock underlying Series E Warrants issued in a private placement dated
May 31, 2012</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(7) Steven T. Brown has voting and control
power over the shares held by this entity. (iv) 2,857,143 shares of preferred stock issued to Pergament Mult-Strategy Opportunities
LP in the private placement closed May 31, 2012, (v) 2,857,143 shares of common stock underlying Series C Warrants issued in a
private placement dated May 31, 2012, (vii) 1,428,571 shares of common stock underlying Series D Warrants issued in a private placement
dated May 31, 2012, and (viii) 1,428,571 shares of common stock underlying Series E Warrants issued in a private placement dated
May 31, 2012.</P>

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following includes a summary of transactions
since the beginning of fiscal 2010, or any currently proposed transaction, in which we were or are to be a participant and the
amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest
(other than compensation described under &ldquo;Executive Compensation&rdquo;). We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available
or the amounts that would be paid or received, as applicable, in arm&rsquo;s-length transactions.</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Pursuant to the Securities Exchange Agreement,
on November 8, 2011, we issued 30,349,998 shares of our common stock to Amir Mireskandari and Khaled Alattar, the former members
of LY Retail-Texas.&nbsp;&nbsp;Immediately following the Securities Exchange, Mireskandari and Alattar became our principal stockholders.
Mr. Mireskandari was also appointed as the Chairman of our Board of Directors.</FONT></TD></TR></TABLE>

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

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

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

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

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



<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top"><TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Pursuant to the private placement that
closed on November 8, 2011, we issued (i) 167,416 shares of our common stock to Mireskandari and 482,579 shares of our common stock
to Alattar; (ii) Series A Warrants exercisable for 83,708 shares of our common stock to Mireskandari and Series A Warrants exercisable
for 241,298 shares of our common stock to Alattar; and (iii) Series B Warrants exercisable for 83,708 shares of our common stock
to Mireskandari and Series B Warrants exercisable for 241,298 shares of our common stock to Alattar.&nbsp;&nbsp;In consideration
for the purchase price for such securities, Mireskandari and Alattar delivered to the Company Bridge Notes in the aggregate principal
amount of $115,000.&nbsp;&nbsp;In addition, Mireskandari paid $15,000 in cash.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Pursuant to the private placement that
closed on December 15, 2011, we issued (i) 250,002 shares of our common stock to Mireskandari (ii) Series A Warrants exercisable
for 125,001 shares of our common stock to Mireskandari (iii) Series B Warrants exercisable for 125,001 shares of our common stock
to Mireskandari for which Mr. Mireskandari paid $50,000 in cash.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Pursuant to a convertible debenture dated
January 26, 2012, Mr. Mireskandari contributed a debenture amount of $50,000 convertible into 166,667 shares of our common stock
and Mr. Alattar contributed a debenture amount of $175,000 convertible into 583,333 shares of our common stock.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">On November 8, 2011, we entered into the
Agreement of Sale with Shalom and Bergman pursuant to which we sold our equity interest in SpinCo to Shalom and Bergman in exchange
for 119,000,000 shares of our common stock.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">Prior to the Securities Exchange, LY Retail-Texas
and Mireskandari and Alattar entered into Bridge Notes in the aggregate principal amount of $115,000.&nbsp;&nbsp;As set forth above,
such Bridge Notes were exchanged for units in the offering.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">On January 26, 2012, we subleased approximately
5,313 square feet of office and warehouse space in Los Angeles California from a related party (&ldquo;Venice&rdquo; lease). The
lease is a twenty four month operating lease with monthly rent expense of $9,564 per month. Our CEO and Director are related to
the sublessor of the Venice property. Payments on the sub-lease were $28,690 for the three months ended March 31, 2012.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">In May, 2012 we entered into an MOU with
Home Loft, Inc. to acquire their Leather Groups, web site and certain assets. Our Chief Technology Officer owns Home Loft, Inc.
We have not reached a formal agreement as of this date.</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">On May 1, 2012 we entered into an operating
agreement with Jaxon International, LLC. The Company Pays Jaxon $40,500 per month to cover their operating expense and keeps all
of the profits from the store as compensation for operating it. Our CEO and Director is related to the owner of Jaxon International,
LLC.</FONT></TD></TR></TABLE>

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our authorized capital stock consists of
500,000,000 shares of common stock at a par value of $0.0001 per share and 50,000,000 shares of preferred stock at a par value
of $0.0001 per share, of which 10,000,000 is designated as 8% Convertible Perpetual Preferred Stock. As of June 11, 2012, 69,002,253
shares of our common stock and 8,904,287 shares of our 8% preferred stock were issued and outstanding.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Holders of our common stock are entitled
to one vote for each share on all matters submitted to a stockholder vote. Our common stock does not have cumulative voting rights.
Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors.
Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled
to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by
the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation,
merger or an amendment to our certificate of incorporation. Although there are no provisions in our charter or by-laws that may
delay, defer or prevent a change in control, the board of directors is authorized, without shareholder approval, to issue shares
of preferred stock that may contain rights or restrictions that could have this effect. Holders of common stock are entitled to
share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation,
dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment
of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common
stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our certificate of incorporation provides
that we are authorized to issue up to 50,000,000 shares of preferred stock with a par value of $0.0001 per share. Our Board of
Directors has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one
or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the board may
determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase
funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders
of common stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>8% Convertible Perpetual Preferred
Stock</I></B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 25, 2012, the Company filed with
the Secretary of State of the State of Delaware a Certificate of Designation (the &ldquo;Certificate&rdquo;) establishing the voting
powers, designations, preferences, limitations, restrictions and relative rights of the 8% preferred stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Dividends<B>.</B></I> Each
holder of Shares is entitled to receive dividends at the rate of eight percent per year of the original issue price. The 8% preferred
stock dividends are cumulative, whether or not earned or declared, and are to be paid quarterly. The Company may elect pay dividends
in cash or shares (if certain notice and certain equity conditions are satisfied).</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Liquidation Rights.</I> Upon
the voluntary or involuntary liquidation, winding-up or dissolution of the Company, the holders of the Shares may exercise their
rights to convert all or a portion of their Shares into common stock. Each holder of Shares that does not exercise its rights to
convert shall be entitled to receive out of the assets of the Company, for each Share, cash in an amount equal to (i) the original
issue price plus (ii) all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the Junior
Stock (as defined in the Certificate), but after payment of all outstanding indebtedness and all amounts due on liquidation, dissolution
or winding-up in respect of all preferred stock of the Company which by its terms is senior to the Shares, if any. If the assets
of the Company available for distribution to the holders of the Shares upon any liquidation, dissolution or winding-up of the Company
are insufficient to pay the full preferential amount to which the holders are entitled, then the holders of the Shares shall share
in such distribution of assets pro rata in accordance with the amount that would be payable on such distribution if the amounts
to which the holders of Shares were entitled were paid in full. A Fundamental Transaction (as defined in the Certificate) shall
be treated as a liquidation for purposed of the liquidation preference contained in the Certificate. Prior to the consummation
of such Fundamental Transaction, the holders of Shares may exercise their rights to convert all or a portion of their Shares into
Common Stock.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Voting Rights</I>. With respect
to any matter on which the holders of common stock shall be entitled to vote, the holders of Shares shall vote together with the
holders of common stock, and not as a separate class, and each share shall have a number of votes equal to the number of shares
of common stock then issuable upon conversion.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Optional Conversion by Holder</I>.
The holder of any Shares has the right at such holder's option to convert the Shares into such number of shares of fully paid and
nonassessable shares of common stock as is determined by dividing the original issue price by the conversion price, multiplied
by the number of Shares being converted.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Adjustments to Conversion
Price.</I> The conversion price of the Shares are subject to adjustment upon certain events, such as stock splits, combinations,
dividends, distributions, reclassifications, reorganizations, mergers or other corporate changes. In addition, subject to certain
exceptions, if at any time after the Closing Date, the Company issues or sells any shares of its common stock (including options
and convertible securities) at a price per share less than the applicable conversion price of the Shares then in effect issue price
(each, a &ldquo;Dilutive Issuance&rdquo;), then immediately after such Dilutive Issuance, the conversion price of the Shares then
in effect shall be reduced to an amount equal to the price per share of such Dilutive Issuance.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series A Warrants have a five-year
term and are exercisable for an aggregate of 2,700,006 shares of our common stock at an initial per share exercise price of $0.30,
subject to adjustment as set forth below.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series B Warrants have a
five-year term and are exercisable for an aggregate of 2,700,006 shares of our common stock at an initial per share exercise
price of $0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to certain adjustment, such as stock splits, combinations, dividends, distributions,
reclassifications, mergers or other corporate changes.&nbsp;&nbsp;In addition, subject to certain exceptions, if at any time
after the closing date, the Company issues or sells any shares of its common stock at a price per share less than the
exercise price of the applicable warrant, then immediately after such new issuance, the exercise price of the applicable
warrant then in effect shall be reduced to an amount equal to the price per share of such new issuance.&nbsp;&nbsp;If the
warrants are not registered with the Securities Act, the warrants can be exercised on a cashless basis.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series C Warrants have a five-year
term and are exercisable for an aggregate of up to 8,904,287 shares of the Company&rsquo;s common stock at an initial per share
exercise price of $0.50, subject to adjustment as set forth below.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series D Warrants have a 90 day term
and are exercisable for an aggregate of up to 4,452,144 shares of the Company&rsquo;s common stock at an initial per share exercise
price of $0.35, subject to adjustment as set forth below.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Series E Warrants have a five-year
term and are exercisable for an aggregate of up to 4,452,144 shares of the Company&rsquo;s common stock at an initial per share
exercise price of $0.50, subject to adjustment as set forth below.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The exercise prices of the Series C Warrants,
Series D Warrants and Series E Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends,
distributions, reclassifications, mergers or other corporate changes. In addition, subject to certain exceptions, if at any time
after the closing date, the Company issues or sells any shares of its common stock (including options and convertible securities)
at a price per share less than the exercise price of the applicable Warrant (each, a &ldquo;Dilutive Issuance&rdquo;), then immediately
after such Dilutive Issuance, the exercise price of the applicable Warrants then in effect shall be reduced to an amount equal
to the price per share of such Dilutive Issuance. The warrants can be exercised on a cashless basis if certain conditions are met.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Purchase Rights</I>. In addition to
any adjustments pursuant to the warrant, if at any time the Company grants, issues or sells any options, convertible securities
or rights to purchase stock, warrants, securities or other property pro rata to the record holders of common stock, then the holder
will be entitled to acquire the aggregate purchase rights which the holder could have acquired if the holder had held the number
of shares of common stock acquirable upon complete exercise of the warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such purchase rights.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Fundamental Transactions. </I>The Company
may not enter into or be party to a Fundamental Transaction (as defined in the warrant) unless (i) the successor entity assumes
in writing all of the obligations of the Company under the warrant in form and substance reasonably satisfactory to the holders
of a majority of the Company warrants outstanding on such date (the &ldquo;Required Holders&rdquo;) and approved by the Required
Holders prior to such Fundamental Transaction, and (ii) the successor entity is a publicly traded corporation whose common stock
is quoted on or listed for trading on an approved exchange.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Delaware law authorizes Delaware corporations
to limit or eliminate the personal liability of their directors to them and their stockholders for monetary damages for breach
of a director&rsquo;s fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors
must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations
Delaware law authorizes, directors of Delaware corporations are accountable to those corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty of care. Delaware law enables Delaware corporations
to limit available relief to equitable remedies such as injunction or rescission. Our certificate of incorporation limits the liability
of our directors to us and our stockholders to the fullest extent Delaware law permits. Specifically, no director will be personally
liable for monetary damages for any breach of the director&rsquo;s fiduciary duty as a director, except for liability:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">for any breach of the director&rsquo;s duty of loyalty to us or our stockholders;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law (the &ldquo;DGCL&rdquo;); and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">for any transaction from which the director derived an improper personal benefit.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">This provision could have the effect of
reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management
from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might
otherwise have benefited us and our stockholders. Our bylaws provide indemnification to our officers and directors and other specified
persons with respect to their conduct in various capacities. See &ldquo;Indemnification of Directors and Officers.&rdquo;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or person controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Anti-Takeover Effects of Provisions
of the DGCL and our Certificate of Incorporation and Bylaws</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Provisions of the DGCL and our certificate
of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise,
or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking
to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of
our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could
result in improved terms for our stockholders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Delaware Anti-Takeover Statute.</I>
We were subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly-held
Delaware corporation from engaging in a &ldquo;business combination&rdquo; with an &ldquo;interested stockholder&rdquo; for a period
of three years following the time the person became an interested stockholder, unless the business combination or the acquisition
of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a &ldquo;business
combination&rdquo; includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an &ldquo;interested stockholder&rdquo; is a person 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 a corporation&rsquo;s
voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not
approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We are not subject to Section 203 of the
DGCL because we do not have a class of voting stock that is listed on a national securities exchange or held of record by more
than 2,000 stockholders and we have not elected by a provision in our original certificate of incorporation to be governed by Section
203. Unless we adopt an amendment of our certificate of incorporation by action of our stockholders expressly electing not to be
governed by Section 203, we would generally become subject to Section 203 of the DGCL at such time that we have a class of voting
stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders, except that the
restrictions contained in Section 203 would not apply if the business combination is with an interested stockholder who became
an interested stockholder before the time that we have a class of voting stock that is either listed on a national securities exchange
or held of record by more than 2,000 stockholders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;<I>Amendments to Our Certificate
of Incorporation.</I> Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote thereon and
a majority of the outstanding stock of each class entitled to vote thereon is required to amend a corporation&rsquo;s certificate
of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote
as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment
would:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">increase or decrease the aggregate number of authorized shares of such class;</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">increase or decrease the par value of the shares of such class; or</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&#9679;</TD><TD STYLE="text-align: justify">alter or change the powers, preferences or special rights of the shares of such class so as to
affect them adversely.</TD></TR></TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">If any proposed amendment would alter or
change the powers, preferences or special rights of one or more series of any class of our capital stock so as to affect them adversely,
but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a
separate class for the purposes of this provision.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Vacancies in the Board of Directors.</I>
Our bylaws provide that, subject to limitations, any vacancy occurring in our board of directors for any reason may be filled by
a majority of the remaining members of our board of directors then in office, even if such majority is less than a quorum. Each
director so elected shall hold office until the expiration of the term of the other directors. Each such directors shall hold office
until his or her successor is elected and qualified, or until the earlier of his or her death, resignation or removal.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Special Meetings of Stockholders.</I>
Under our bylaws, special meetings of stockholders may be called at any time by our President whenever so directed in writing by
a majority of the entire board of directors. Special meetings can also be called whenever one-third of the number of shares of
our capital stock entitled to vote at such meeting shall, in writing, request one. Under the DGCL, written notice of any special
meeting must be given not less than 10 nor more than 60 days before the date of the special meeting to each stockholder entitled
to vote at such meeting.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>No Cumulative Voting.</I> The DGCL provides
that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.</P>

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The transfer agent and registrar for our common stock is VStock
Transfer, LLC. The transfer agent&rsquo;s address is 77 Spruce Street, Suite 201, Cedarhurst, NY 11516, and its telephone number
is (212) 828-8436.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The common shares being offered for resale by the selling stockholders
consist of 39,144,590 shares. We will pay any fees and expenses incurred by us incident to the registration of the securities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 15pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Each selling stockholder of the securities
and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered
hereby on the OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.
These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling
securities:</P>

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

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

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

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

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

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

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

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

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

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

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">settlement of short sales entered into after the effective date of the registration statement of
which this prospectus is a part;</TD></TR></TABLE>

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

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD STYLE="text-align: justify">in transactions through broker-dealers that agree with the selling stockholders to sell a specified
number of such securities at a stipulated price per security;</TD></TR></TABLE>

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The selling stockholders may also sell
securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Broker-dealers engaged by the selling stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&nbsp;</P>

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The selling stockholders and any broker-dealers
or agents that are involved in selling the securities may be deemed to be &ldquo;underwriters&rdquo; within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the securities.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The resale securities will be sold only
through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states,
the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available and is complied with.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Under applicable rules and regulations
under the Securities Exchange Act of 1934, as amended (the &ldquo;Exchange Act&rdquo;), any person engaged in the distribution
of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders
will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other person.
We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy
of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities
Act).</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The validity of the shares of common stock
offered by this prospectus and certain other legal matters as to Delaware law will be passed upon for us by Anslow &amp; Jaclin
LLP, Manalapan, New Jersey.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our audited consolidated financial statements
appearing in this prospectus and registration statement have been audited by <FONT STYLE="background-color: white">MaloneBailey,
LLP</FONT>, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and
in the registration statement, and are included in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We filed with the SEC a registration statement
under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the registration statement. For further information with
respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration
statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other
document filed as an exhibit to the registration statement.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We file annual, quarterly, and current
reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC&rsquo;s website at
www.sec.gov. Those filings are also available to the public on our corporate website at www.Luxeyard.com. The information we file
with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part
of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC&rsquo;s
prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus
is a part, at the SEC&rsquo;s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC
at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.</P>

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

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

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

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: center; text-indent: 0in"><B>DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION OF<BR>
SECURITIES ACT LIABILITIES</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling persons of our company under Delaware law or otherwise,
our company has been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>39,144,590</B> <B>Shares of Common Stock</B></P>

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

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

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

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LUXEYARD, INC.</B></P>

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

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

<!-- Field: Rule-Page --><DIV ALIGN="CENTER" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

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

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

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

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

<!-- Field: Rule-Page --><DIV ALIGN="CENTER" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Until _____________, all dealers that effect
transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is
in addition to the dealer&rsquo;s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>The date of this prospectus is &nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> , 2012</B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PART II&mdash; INFORMATION NOT REQUIRED
IN THE PROSPECTUS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Item 13. Other Expenses Of Issuance And Distribution.</B></P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 88%; text-align: left">Securities and Exchange Commission registration fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Federal Taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">State Taxes and Fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Transfer Agent Fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">775</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Legal fees and expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">105,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Blue Sky fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">5,875</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Miscellaneous</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">114,150</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">All amounts are estimates other than the
SEC&rsquo;s registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne
by the selling stockholders. The selling stockholders, however, will pay any other expenses incurred in selling their common stock,
including any brokerage commissions or costs of sale.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 14. Indemnification of Directors
and Officers.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Section 102(b)(7) of the Delaware General
Corporation Law allows a corporation to provide in its certificate of incorporation that a director of the corporation will not
be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except
where the directors breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated
a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an
improper personal benefit. Our certificate of incorporation provides for this limitation of liability.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Section 145 of the General Corporation
Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made,
party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director,
employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer employee or
agent of another corporation or enterprise. The indemnity may include expenses (including attorneys&rsquo; fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation&rsquo;s
best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or were, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses (including attorneys&rsquo; fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the corporation&rsquo;s best interests, provided that no
indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such officer or directors has actually and reasonably incurred.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Section 145 further authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether
or not the corporation would otherwise have the power to indemnify him under Section 145.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Our bylaws provide that we will indemnify
our directors and officers to the fullest extent authorized by the General Corporation Law of the State of Delaware and shall pay
expenses incurred (including attorneys&rsquo; fees) in defending any proceeding in advance of its final disposition upon receipt
of an undertaking, by an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person
is not entitled to be indemnified under this section or otherwise.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The indemnification rights set forth above
shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action in such person&rsquo;s official capacity and as
to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We maintain a general liability insurance
policy that covers liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in
their capacities as directors or officers.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 15. Recent Sales of Unregistered
Securities.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On May 31, 2012, we completed a private
offering of units consisting of an aggregate of (i) 8,904,287 shares of its 8% preferred stock, (ii) Series C warrants <FONT STYLE="color: black; background-color: white">to
purchase 8,904,287 shares of its common stock which have a five-year term and an initial per share exercise price of $0.50</FONT>,
subject to adjustment, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock <FONT STYLE="color: black; background-color: white">which
have a 90 day term and an initial per share exercise price of $</FONT>0.35, subject to adjustment, and (iv) Series E warrants to
purchase up to 4,452,144 shares of common stock <FONT STYLE="color: black; background-color: white">which have a five-year term
and an initial per share exercise price of $</FONT>0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross
proceeds of approximately $3,116,500.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-size: 10pt">On April
24, 2012, we completed a private placement by issuing to the investors, Notes aggregating $</FONT> <FONT STYLE="font-size: 10pt">2,915,000
that are convertible into an aggregate of 9,716,667 Shares at a conversion price of $0.30 per share, subject to adjustment.</FONT></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 15, 2011, we completed a private
offering of units consisting of an aggregate of (i) 2,250,016 shares of our common stock, (ii) Series A Warrants <FONT STYLE="background-color: white">to
purchase 1,125,008 shares of our common stock which have a five-year term and an initial per share exercise price of $</FONT>0.30,
subject to adjustment, and (iii) Series B Warrants <FONT STYLE="background-color: white">to purchase 1,125,008</FONT> <FONT STYLE="background-color: white">shares
of our common stock which have a five-year term and an initial per share exercise price of $</FONT>0.60, subject to adjustment.&nbsp;&nbsp;The
price per unit was $0.20 for an aggregate purchase price of $450,000 (the &ldquo;Purchase Price&rdquo;).</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we completed a private
offering of units consisting of an aggregate of (i) 3,150,012 shares of our common stock, (ii) Series A warrants <FONT STYLE="background-color: white">to
purchase 1,574,998</FONT> <FONT STYLE="background-color: white">shares of common stock which have a five-year term and an initial
per share exercise price of $</FONT>0.30, subject to adjustment as described below (the &ldquo;Series A Warrants&rdquo;), and (iii)
Series B warrants <FONT STYLE="background-color: white">to purchase 1,574,998</FONT> <FONT STYLE="background-color: white">shares
of common stock which have a five-year term and an initial per share exercise price of $</FONT>0.60, subject to adjustment as described
below (the &ldquo;Series B Warrants&rdquo;).&nbsp;&nbsp;The price per unit was $0.20 for an aggregate purchase price of approximately
$630,000.&nbsp;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The above securities were offered and sold
in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D (&ldquo;Regulation
D&rdquo;) promulgated under the Securities Act.&nbsp;&nbsp;The Company made this determination based on the representations of
the investors which included, in pertinent part, that each such investor was an &ldquo;accredited investor&rdquo; within the meaning
of Rule 501 of Regulation D and upon such further representations from each investor that (i) such investor is acquiring the securities
for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment
or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investor agrees not to sell or
otherwise transfer the purchased securities or shares underlying such securities unless they are registered under the Securities
Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investor
has knowledge and experience in financial and business matters such that such investor is capable of evaluating the merits and
risks of an investment in us, (iv) such investor&nbsp;&nbsp;had access to all of the Company&rsquo;s documents, records, and books
pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions
of the Offering and to obtain any additional information which the Company possessed or was able to acquire without unreasonable
effort and expense, and (v) such investor has no need for the liquidity in its investment in us and could afford the complete loss
of such investment. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation
D.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, we completed the Securities
Exchange whereby we acquired all of the issued and outstanding membership interests of LY Retail-Texas in exchange for 30,349,998
shares of our common stock which shares constituted approximately 52.43% of our issued and outstanding shares&nbsp;of common stock&nbsp;as
of and immediately after the consummation of the Securities Exchange.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The shares of common stock issued to the
former members of Luxeyard in connection with the Securities Exchange were offered and sold in a private transaction in reliance
upon exemptions from registration pursuant to Section 4(2) of the Securities Act.&nbsp;&nbsp;Our reliance on Section 4(2) of the
Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by
us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous
public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations
for the sale of the stock took place directly between the offerees and us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><BR>
<B>Item 16. Exhibits.</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">See Exhibit Index following the signature
page.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Item 17. Undertakings.</B></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration statement:</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">i. To include any prospectus
required by section 10(a)(3) of the Securities Act of 1933;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">ii. To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the &ldquo;Calculation
of Registration Fee&rdquo; table in the effective registration statement.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">iii. To include any material information
with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
information in the registration statement;</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(3) To remove from registration by means
of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;(4) Insofar as indemnification for
liabilities arising under the Securities Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the 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 Act and will be governed by the final
adjudication of such issue.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">(5) Each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.</P>

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">Pursuant to the requirements
of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereonto duly authorized, in the City of Los Angeles, State of California, on June 15, 2012.</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold">LUXEYARD</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 61%">&nbsp;</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 37%">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">By:</TD>
    <TD STYLE="padding-bottom: 1pt; vertical-align: bottom">/s/ Braden Richter</TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="border-top: windowtext 1pt solid; vertical-align: bottom">Braden Richter</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">President and Chief Executive Officer</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(Principal Executive Officer)</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD STYLE="padding-bottom: 1pt">/s/ Margot Ritcher</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-top: windowtext 1pt solid">Margot Ritcher</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>(Principal Financial Officer)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">KNOW ALL PERSONS BY
THESE PRESENTS, that each person whose signature appears below constitutes and appoints Braden Richter, Margot Richter and Amir
Mireskandari, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the same offering covered by the registration statement
that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.</P>

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 41%; border-bottom: Black 1pt solid; font-weight: bold">Signature</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 38%; border-bottom: Black 1pt solid; font-weight: bold">Capacity</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 17%; border-bottom: Black 1pt solid; font-weight: bold">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Braden Richter</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">President, Chief Executive Officer and Director</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">June 15, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Braden Richter</TD>
    <TD>&nbsp;</TD>
    <TD>(Principal Executive Officer) and Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Margot Ritcher</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">Chief Financial Officer and Secretary</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">June 15, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Margot Ritcher</TD>
    <TD>&nbsp;</TD>
    <TD>(Principal Financial Officer)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/Amir Mireskandari</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">Director (Chairman)</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid">June 15, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Amir Mireskandari</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: yellow"><B></B></FONT></P>

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

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

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR>
    <TD NOWRAP COLSPAN="2" STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Exhibit</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Number</B></P></TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; border-bottom: windowtext 1pt solid; font-weight: bold">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right; width: 8%">2.1</TD>
    <TD STYLE="width: 5%">&nbsp;</TD>
    <TD STYLE="text-align: center; width: 2%">&nbsp;</TD>
    <TD STYLE="width: 85%">Securities Exchange Agreement, dated November 8, 2011, by and among the Company, Omri Amos Shalom, Ankiva Bergman, LY Retail, LLC, Amir Mireskandari and Khaled Alattar (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Articles of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Bylaws (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.3</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Certificate of Amendment to Articles of Incorporation (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.4</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Certificate of Amendment to Articles of Incorporation, dated May 2, 2012 (8)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">3.5</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Certificate of Designation - 8% Convertible Perpetual Preferred Stock (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Opinion of Anslow &amp; Jaclin, LLP **</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Contribution and Assumption Agreement, dated November 8, 2011, by and between the Company and TGRE SubCo, LLC (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.2</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Agreement of Sale, dated November 8, 2011, by and among the Company, Omri Amos Shalom and Ankiva Bergman (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Subscription Agreement dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.4</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series A Warrant dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series B Warrant dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.6</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Registration Rights Agreement dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.7</TD>
    <TD>(a)</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up Agreement with Braden Richter dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>(b)</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up Agreement with Kevin Walker dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>(c)</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up Agreement with Joshua Thompson dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>(d)</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up Agreement with Jerry Wilkerson dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>(e)</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up Agreement with Khaled Alattar dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.8</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Lock Up/Leak Out Agreement with Amir Mireskandari dated November 8, 2011 (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.9</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Subscription Agreement dated December 15, 2011 (4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.10</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series A Warrant dated December 15, 2011 (4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.11</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series B Warrant dated December 15, 2011 (4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.12</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Registration Rights Agreement dated December 15, 2011 (4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.13</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Braden Richter, dated November 8, 2011. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.14</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Steve Beauregard, dated November 8, 2011. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.15</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Jerry Wilkerson, dated November 8, 2011. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.16</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Joshua Thompson, dated November 8, 2011. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.17</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Christian Vega, dated February 27, 2012. (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.18</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Employment Agreement with Tony Winders, dated March 12, 2012. (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.19</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Severance Agreement with Kevin Walker, dated December 20, 2011. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.20</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Luxeyard, Inc. 2012 Stock Option Plan. (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.21</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Asset Purchase Agreement, dated February 22, 2012, by and between LY Retail, LLC and eOpulence, LLC. (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.22</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Debenture Purchase Agreement (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.23</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of 10% Convertible Debenture (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.24</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Securities Purchase Agreement dated May 24, 2012 (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.25</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series C Warrant (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.26</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series D Warrant (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.27</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Series E Warrant (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.28</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Registration Rights Agreement dated May 24, 2012 (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.29</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Form of Placement Agent Warrant (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">14.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Code of Ethics (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">21.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>List of Subsidiaries (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.1</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Consent of MaloneBailey, LLP *</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.2</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Consent of Anslow &amp; Jaclin, LLP (included in Exhibit 5.1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right; text-indent: -5.4pt">101</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD>Interactive Data File [incorporated by reference to Exhibit 101 filed with the Company&rsquo;s Annual Report on Form 10-K for the year ended December 31, 2011 filed on April 16, 2012 and Quarterly Report on Form 10-Q for the period ended March 31, 2012 filed on May 15, 2012 with the SEC]</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) Incorporated by reference to the Company&rsquo;s
Registration Statement on Form S-1 filed with the SEC on July 12, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) Incorporated by reference to the Company&rsquo;s Registration
Statement on Form S-1 filed with the SEC on January 18, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(3) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on November 15, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(4) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on December 21, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(5) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on March 2, 2012.(6) Incorporated by reference to the Company&rsquo;s Annual Report on Form
10-K filed with the SEC on April 16, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(7) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on April 27, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(8) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on May 4, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(9) Incorporated by reference to the Company&rsquo;s Current
Report on Form 8-K filed with the SEC on May 25, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">** To be filed by amendment.</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 100%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">Luxeyard, Inc.</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">CONSOLIDATED BALANCE SHEETS</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">Unaudited</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">March
    31, 2012</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; font-weight: bold; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">December
    31, 2011</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; font-weight: bold; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR>
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">ASSETS</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">Current
    Assets:</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 66%; font-size: 10pt; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash</FONT></TD><TD STYLE="width: 2%; font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">204,153</FONT></TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="width: 2%; font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">154,400</FONT></TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Restricted
    cash</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">150,000</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accounts
    receivable</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">600</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Inventory</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">49,763</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">5,466</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Prepaid
    expenses and other current assets</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">31,410</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">16,376</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Total
    current assets</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">285,326</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">326,842</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Property
    and equipment, net of accumulated depreciation of $12,650 and $695</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-indent: 0; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">as of March
    31, 2012 and December 31, 2011, respectively</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">177,220</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">16,869</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Deposits</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">84,085</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">TOTAL
    ASSETS</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">546,631</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">343,711</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">LIABILITIES
    AND STOCKHOLDERS' DEFICIT</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">Current
    Liabilities:</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accounts
    payable</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">216,155</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">63,426</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accrued
    liabilities</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">124,364</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">158,206</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Deferred
    revenue</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">9,701</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Total
current liabilities</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">340,519</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">231,333</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Derivative
    liabilities</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">7,936,333</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">158,758</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Convertible
    debentures, net of debt discount of $1,426,682 as of March 31, 2012</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">543,318</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Total
liabilities</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">8,820,170</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">390,091</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Commitments
    and contingencies</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Stockholders'
    Deficit:</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: -0.12in; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Common
    stock, $0.0001 par value.100,000,000 authorized shares; 63,290,000 issued and outstanding shares</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">6,329</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">6,329</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; text-indent: 0; padding-left: 0.12in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Additional
    paid in capital</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">1,281,236</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">985,738</FONT></TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Accumulated
    deficit</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">(9,561,104</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">(1,038,447</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.12in; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; text-indent: 0; padding-left: 0.12in"><FONT STYLE="font-size: 10pt">Total
    Stockholders'&nbsp; Deficit</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">(8,273,539</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">(46,380</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">TOTAL
    LIABILITIES AND STOCKHOLDERS'&nbsp; DEFICIT</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">546,631</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">343,711</FONT></TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
</TABLE>


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

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

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

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

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

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 100%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">Luxeyard, Inc.</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">CONSOLIDATED STATEMENT OF OPERATIONS</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">Unaudited</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt; padding-left: 0">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center; border-bottom: Black 1pt solid; padding-left: 0">For&nbsp; The Three <BR>
Months Ended <BR>
March 31, 2012</TD><TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 1pt; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 0; padding-left: 0">REVENUE</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 83%; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">Total Revenue</TD><TD STYLE="width: 2%; font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">$</TD><TD STYLE="width: 13%; border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">155,089</TD><TD STYLE="width: 1%; padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0">COST OF GOODS SOLD</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">Cost of Sales</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">211,778</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0">GROSS LOSS</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">(56,689</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0">OPERATING EXPENSES</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0">Selling, general and administrative</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">1,864,563</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0">Impairment loss</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">192,753</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0">Stock compensation expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">35,201</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">Depreciation</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">11,955</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">Total Operating Expenses</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">2,104,472</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0">Operating Loss</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">(2,161,161</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0">Other Expenses</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; padding-bottom: 0">Derivative loss</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">6,294,694</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">Interest expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">66,802</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 0; padding-left: 0">NET LOSS</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">(8,522,657</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; text-align: left; padding-bottom: 0; padding-left: 0">Basic and Diluted Loss Per Share</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">(0.13</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0; padding-bottom: 0">&nbsp;</TD><TD STYLE="padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; font-weight: bold; padding-bottom: 0; padding-left: 0">Weighted Average Outstanding Shares</TD><TD STYLE="font-size: 10pt; padding-bottom: 0; padding-left: 0">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left; padding-bottom: 0; padding-left: 0">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right; padding-bottom: 0; padding-left: 0">63,290,000</TD><TD STYLE="padding-bottom: 0; font-size: 10pt; text-align: left; padding-left: 0">&nbsp;</TD></TR>
</TABLE>

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

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

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

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

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

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: left; margin-bottom: 0pt">&nbsp;</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; border-collapse: collapse; font-family: Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 100%; padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">Luxeyard, Inc.</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">&nbsp;CONSOLIDATED STATEMENT OF CASH FLOWS</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-size: 10pt; font-weight: bold; text-align: center">&nbsp;Unaudited&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font-family: Times New Roman, Times, Serif">
<TR>
    <TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; font-weight: bold; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">For
    Three <BR>
Months Ended <BR>
March 31, 2012</FONT></TD><TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
flows from operating activities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 83%; font-size: 10pt; color: Black; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Net&nbsp;
loss</FONT></TD><TD STYLE="width: 2%; font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="width: 13%; font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(8,522,657</FONT></TD><TD STYLE="width: 1%; font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Adjustments
to reconcile net loss to net cash used in operating activities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Depreciation</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">11,955</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Stock
compensations expense</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">35,201</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Impairment
loss</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">192,753</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Amortization
of debt dsicount</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">56,199</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Derivative
loss</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">6,294,694</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Changes
in operating assets and liabilities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accounts
receivable</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">600</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Inventory</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(44,297</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Prepaid
expenses and other current assets</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(15,034</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Deposits</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(84,085</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accounts
payable</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">152,729</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Accrued
liabilities</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(33,842</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.36in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Deferred
revenue</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(9,701</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Net
cash used in operating activities</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(1,965,485</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
flows from investing activities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Restricted
cash</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">150,000</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Purchase
of equipment and leasehold improvements</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">(104,762</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Net
cash provided by investing activities</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">45,238</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
flows from financing activities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Proceeds
from debt</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">1,970,000</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Net
cash provided by financing activities</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">1,970,000</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Net
increase in cash and cash equivalents</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">49,753</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
and cash equivalents at beginning of period</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 1pt solid; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">154,400</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
and cash equivalents at end of period</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; border-bottom: Black 2.5pt double; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; border-bottom: Black 2.5pt double; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">204,153</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Supplemental
disclosures of cash flow information</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
paid for interest</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Cash
paid for income taxes</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">-</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; font-weight: bold; text-align: left; padding-left: 0; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Non
cash investing and financing activities</FONT></TD><TD STYLE="color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Debt
discount on convertible debentures</FONT></TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">$</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">1,482,881</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-left: 0.24in; padding-bottom: 0"><FONT STYLE="font-size: 10pt">Acquisition
    of fixed assets through issuance of stock</FONT> option</TD><TD STYLE="font-size: 10pt; color: Black; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: right; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">67,544</FONT></TD><TD STYLE="font-size: 10pt; color: Black; text-align: left; padding-bottom: 0; padding-left: 0"><FONT STYLE="font-size: 10pt">&nbsp;</FONT></TD></TR>
</TABLE>


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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LUXEYARD INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>MARCH 31, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>NOTES TO FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited) </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>1.</B> <B>Basis of Presentation and Going Concern</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Basis of Presentation </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Luxeyard Inc., (the &ldquo;Company&rdquo;,
&ldquo;we&rdquo; or &ldquo;our&rdquo;), a Delaware Corporation, is an internet company selling luxury goods on a flash web site.
Luxeyard, Inc. is the parent company of the wholly owned subsidiaries, LY Retail, LLC (&ldquo;LY Retail Texas&rdquo;), incorporated
under the laws of the State of Texas on April 20, 2011 and LY Retail, LLC (&ldquo;LY Retail&rdquo;) incorporated in the State of
California on November 8, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have prepared the accompanying consolidated
financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the &ldquo;SEC&rdquo;) for
interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments,
consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating
results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of
the results that may be expected for 2012 due to seasonal and other factors. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States (&ldquo;GAAP&rdquo;)
have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and accompanying notes of our 2011 Annual Report on Form 10-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Going Concern </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate
continuation of the Company as a going concern. For the three months ended March 31, 2012, the Company has incurred operating losses
and negative operating cash flows which raise doubt on its ability to continue as a going concern. The continuation of the Company
as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations, and
the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and these
financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>2.</B> Significant Accounting Policies</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Principles of Consolidation </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements include
the accounts of Luxeyard, Inc. and its wholly-owned subsidiaries, LY Retail Texas and LY Retail. All significant intercompany accounts
and transactions have been eliminated in consolidation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Use of Estimates</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The financial statements are prepared on
the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of March 31, 2012 and December 31, 2011, and expenses for the three months ended March 31, 2012. Actual
results could differ from those estimates made by management.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0"><I>Inventories&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0">Inventories, consisting of products available for sale, are primarily accounted for using the first-in
first-out (&ldquo;FIFO&rdquo;) method, and are valued at the lower of cost or market value. This valuation requires us to make
judgements, based on currently-available information about likely method of disposition, such as through sales to individual customers,
returns to product vendors, or liquidations, and expected recoverable values of each disposition category.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Loss per Common Share</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic loss per share is computed by dividing
the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during
the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding if potential common shares had been issued and
if the additional common shares were dilutive. Basic and diluted earnings per share for the three months ended March 31, 2012 are
the same as any incremental common stock equivalent would be anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Fair Value of Financial Instruments</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Financial instruments are recorded at fair
value in accordance with the standard for &ldquo;Fair Value Measurements codified within ASC 820.&rdquo; Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to
valuation methodologies used to measure fair value:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 1</B>&mdash;Valuations based on
quoted prices for identical assets and liabilities in active markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 2</B>&mdash;Valuations based on
observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 3</B>&mdash;Valuations based on
unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table presents the derivative
financial instruments, the Company&rsquo;s only financial liabilities measured and recorded at fair value on the Company&rsquo;s
consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of March 31, 2012 and December
31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR>
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">March 31, 2012</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Level 1</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Level 2</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Level 3</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 32%; font-size: 10pt">Warrants</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">3,659,458</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">-</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">-</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">3,659,458</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Embedded conversion options</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,276,875</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">4,276,875</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">7,936,333</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">7,936,333</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="margin: 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR>
    <TD STYLE="font-size: 10pt">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">December 31, 2011</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Level 1</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center">Level 2</TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-size: 10pt; font-weight: bold; text-align: center"><B>Level 3</B></TD><TD STYLE="font-size: 10pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; width: 32%">Warrants</TD><TD STYLE="font-size: 10pt; width: 2%">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; width: 1%">$</TD><TD STYLE="font-size: 10pt; text-align: right; width: 13%">158,758</TD><TD STYLE="font-size: 10pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="font-size: 10pt; width: 2%">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; width: 1%">$</TD><TD STYLE="font-size: 10pt; text-align: right; width: 13%">-</TD><TD STYLE="font-size: 10pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="font-size: 10pt; width: 2%">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; width: 1%">$</TD><TD STYLE="font-size: 10pt; text-align: right; width: 13%">-</TD><TD STYLE="font-size: 10pt; text-align: left; width: 1%">&nbsp;</TD><TD STYLE="font-size: 10pt; width: 2%">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; width: 1%">$</TD><TD STYLE="font-size: 10pt; text-align: right; width: 13%">158,758</TD><TD STYLE="font-size: 10pt; text-align: left; width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">Embedded conversion options</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">Total</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">158,758</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-size: 10pt; text-align: right">158,758</TD><TD STYLE="padding-bottom: 2.5pt; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following table provides a summary
of the changes in fair value, including net transfers in an/or out, of the derivative financial instruments, measured at fair value
on a recurring basis using significant unobservable inputs:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 83%; font-size: 10pt; text-align: justify">Balance at December 31, 2011</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">158,758</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify">Fair value of embedded conversion derivative liability at issuance charged
    to debt discount</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">1,482,881</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 1pt">Unrealized derivative losses included in other expense</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">6,294,694</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 2.5pt">Balance at March 31, 2012</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">7,936,333</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of the derivative liabilities
are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the
fair value of the derivative liabilities are recorded in other expense in the consolidated statement of operations. The derivatives
related to the embedded conversion options (see Note 5) were valued using the Black-Scholes pricing model on the issuance date
with the following assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Risk-free interest rate - 0.22%
to 0.41%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Stock Price - $0.12 to $0.80</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Dividend yield - 0%&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Volatility factor - 274% to 420%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Expected life (years) &ndash;
1.86 to 2 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">At March 31, 2012, the derivatives related
to the warrants and the embedded converstion options were valued using the Black-Scholes pricing model with the following assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Risk-free interest rate - 0.33%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Stock Price - $0.68</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Dividend yield - 0%&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Volatility factor - 272% to 389%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Expected life (years) &ndash;
1.84 to 4.71 years&#9;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-weight: normal"><I>Share-Based
Payments</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">The Company
accounts for share-based awards to employees in accordance with FASB ASC 718 &ldquo;<I>Stock Compensation&rdquo;</I>. </FONT>Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein </FONT>such awards are expensed over the period
in which the related services are rendered at their fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Reclassifications</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Certain accounts in the prior year have
been reclassified to conform to the current year financial statement presentation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Recent Accounting Pronouncements</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>3.</B> <B>Asset Purchase </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 22, 2012 we acquired
certain office equipment and other related assets of eOpulence, LLC for a total purchase price of $260,297 equivalent to the
fair value of 300,000 common stock options. These options have an exercise price of $0.30 per share and will expire on
November 30, 2021. The fair value was calculated using the Black Scholes pricing model using the following assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Risk-free interest rate - 2.7%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Stock price - $0.90</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Dividend yield - 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Volatility factor - 216%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Expected life (years) - 3.0 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We recognized an impairment loss
related to the assets acquired of $192,753 for the three months ended March 31, 2012, because the fair market value of the
acquired assets was less than the consideration paid.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>4.&nbsp; &nbsp;Related Party Transactions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's CEO and Director is related
to the sublessor of our subleased office and warehouse space in Los Angeles, California. &nbsp;Payments on the sub-lease were $28,690 for the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Steve Beauregard, our COO is the founder
and a majority stockholder in Regard Solutions, Inc., (&ldquo;Regard&rdquo;). We have an agreement with Regard for Technical Services
and Project Management. The Company incurred expenses of $163,275 from Regard for the three months ended March 31, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">5. Convertible Debentures</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">During
the three months ended March 31, 2011, the Company issued and sold 10% Convertible Debentures amounting to $1,970,00. These debentures
are convertible to the Company&rsquo;s common stock at $0.30 per share and mature on January 31, 2014. </FONT>&nbsp;<FONT STYLE="font-family: Times New Roman, Times, Serif">The
related debenture agreement also provides for a mandatory conversion anytime prior to the maturity date if all of the following
criteria are met: a) the common shares underlying the debentures are registered in a registration statement under the Securities
Act or are available for resale pursuant to Rule 144; b) the Company&rsquo;s share prices for a period of 10 consecutive days remain
at or above $1 and c) the daily volume of the Company&rsquo;s stock during such consecutive 10 day period is at least 50,000. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company evaluated the terms of the
debentures under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 815-15 and the determined
that the embedded conversion option of the debentures require derivative accounting treatment due to reset provisions in the conversion
price. The fair value of the embedded conversion option amounted to $2,840,420 of which $1,482,881was recognized as a debt discount
to debentures and the difference of $1,357,539 being recognized as a &ldquo;day 1&rdquo; derivative loss. The debt discount is
accreted to interest expense over the term of the debentures. Amortization expense for the three months ended March 31, 2012 amounted
to $56,199.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">6. Options and Warrants</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><I>Stock options</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">During the three months
ended March 31, 2012, the Company granted 2,015,815 options to employees and consultants with exercise prices ranging from $0.30
to $0.80 per share and a term of 10 years. Of the total options granted, 74,815 options vested immediately and the balance of 1,941,000
vest over a period of 36 months. No options are exercisable until the expiration of the Lock-Up agreement on November 15, 2012.
<FONT STYLE="font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The options were valued using the Black-Scholes-pricing
model. Significant assumptions used in the valuation include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Risk-free interest rate - 0.71%
to 2.23 %</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Stock price - $0.03 to $0.80</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Dividend yield - 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Volatility factor - 389% to 412%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Expected life (years) - 5.84
to 10 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the three months ended March 31,
2012, stock compensation expense recognized under amounted to $35,201 and the unamortized stock compensation expense as of March
31, 2012 was $682,485.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&nbsp;&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR>
    <TD STYLE="font-size: 10pt; text-align: center; text-indent: 0; padding-left: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Number of <BR>
options</P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Weighted average exercise price</P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: center; padding-left: 0; vertical-align: bottom">Weighted average remaining contractual life (years)</TD><TD STYLE="font-size: 10pt; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right; text-indent: 0in">&nbsp;</P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Intrinsic value</P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; padding-left: 0; text-indent: 0; vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 32%; font-size: 10pt; text-indent: 0; padding-left: 0">Outstanding at December 31, 2011</TD><TD STYLE="width: 2%; font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">8,876,546</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">0.21</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">9.77</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">-</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-indent: 0; padding-left: 0">Granted</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">2,315,815</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">0.40</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">9.82</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-indent: 0; padding-left: 0">Exercised</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-indent: 0; padding-left: 0; padding-bottom: 1pt">Forfeited/cancelled</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; padding-bottom: 1pt; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0; padding-left: 0; padding-bottom: 2.5pt">Outstanding at March 31, 2012</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">11,192,361</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">0.25</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt; border-bottom: Black 2pt double">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt; border-bottom: Black 2pt double">9.58</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">4,867,161</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify; text-indent: 0; padding-left: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-left: 0; text-indent: 0">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-left: 0; text-indent: 0">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-left: 0; text-indent: 0">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: justify; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">Exercisable at March 31, 2012</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">3,980,389</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">0.22</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt; border-bottom: Black 2pt double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt; border-bottom: Black 2pt double">9.55</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; padding-left: 0; text-indent: 0; border-bottom: Black 2.5pt double">1,845,483</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-left: 0; text-indent: 0; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Warrants</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The following is a summary
of warrant transactions for three months ended March&nbsp;31, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR>
    <TD STYLE="font-size: 10pt; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Number of <BR>
warrants</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Weighted average exercise price</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: center; vertical-align: bottom">Weighted average remaining contractual life (years)</TD><TD STYLE="font-size: 10pt; text-align: center; vertical-align: bottom">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom"></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P><P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Intrinsic value</P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P></TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center; vertical-align: bottom">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 32%; font-size: 10pt">Outstanding at December 31, 2011</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">5,400,000</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">0.45</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">4.86</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-size: 10pt">&nbsp;</TD>
    <TD STYLE="width: 1%; font-size: 10pt; text-align: left">$</TD><TD STYLE="width: 13%; font-size: 10pt; text-align: right">-</TD><TD STYLE="width: 1%; font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt">Granted</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt">Exercised</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">-</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; padding-bottom: 1pt">Forfeited/cancelled</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 1pt; border-bottom: Black 1pt solid">-</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-size: 10pt; text-align: justify; padding-bottom: 2.5pt">Outstanding at March 31, 2012</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">5,400,000</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">0.45</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt; border-bottom: Black 2pt double">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; padding-bottom: 2.5pt; border-bottom: Black 2pt double">4.65</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font-size: 10pt; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right; border-bottom: Black 2.5pt double">1,242,000</TD><TD STYLE="font-size: 10pt; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-size: 10pt; text-align: justify">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: right">&nbsp;</TD><TD STYLE="font-size: 10pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: justify; padding-bottom: 2.5pt">Exercisable at March 31, 2012</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; border-bottom: Black 2.5pt double">5,400,000</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; border-bottom: Black 2.5pt double">0.45</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt; border-bottom: Black 2pt double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; padding-bottom: 2.5pt; border-bottom: Black 2pt double">4.65</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: right; border-bottom: Black 2.5pt double">1,242,000</TD><TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>7. Commitments and Contingencies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From time to time, the Company is party
to various litigation and administrative proceedings relating to claims arising from its operations in the normal course of business.
Based on the information presently available, management believes that resolution of these matters will not have a material adverse
effect on the Company&rsquo;s business, results of operations, financial condition, or cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>8. </B> <B>Subsequent Events</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">In
April 2012 the Company raised an additional $945,000 in aggregate 10% Convertible Debentures with the same terms as those disclosed
in Note 5. In connection with the issuance of the debentures, the Company paid commissions to brokers consisting of $63,500 in
cash and 71,666 common shares. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2012, the Company issued 34,090
shares with a fair value of $30,000 to a consultant. The Company also granted 50,000 shares to a marketing consultant which will
vest based on achievement of certain marketing targets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Effective May 2, 2012, the Company increased
its total number of authorized shares to five hundred fifty million (550,000,000) shares of which five hundred million (500,000,000)
shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check preferred stock, par
value $0.0001.</P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In April 2012, the Company granted restricted common shares
in consideration for services as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>3,365,000 restricted common shares to various consultants</TD></TR></TABLE>
<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>187,000 restricted common shares to a director</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>300,000 restricted common shares to the Chief Executive Officer for consulting services and</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD>50,000 restricted common shares to Regard, Inc., a related party for placing an employee.</TD></TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On April 30, 2012 the Company entered into a
consulting agreement with FireRock Capital Inc. for certain business advisory services for a period of one year. The Company
agreed to pay 500,000 restricted common shares upon execution of the agreement and 166,000 restricted common shares on a
quarterly basis. In addition the Company agreed to pay certain incentive fees up to $1,000,000 in common shares at market
price, for certain revenue milestones achieved for the Company, &nbsp;in relation to each strategic business venture
introduced by FireRock Capital, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On various dates in April through June 2012, a total of
654,483 shares were issued from the conversion of convertible debentures to equity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In May 2012 the Company&rsquo;s subsidiary, LY Retail, LLC,
entered into an operating agreement with Jaxon International, LLC (Jaxon) to manage its operations. LY Retail will pay Jaxon $40,500
per month to cover operating expenses. As consideration for the management agreement LY Retail is entitled to all of the sales
profits of Jaxon. Jaxon is owned by a party related to the Chief Executive Officer.<BR>
<BR>
On various dates in May 2012, the Company entered into two bridge notes totaling to $225,000. These notes are due on demand and
bear annual interest of 7%. These notes were subsequently converted into 642,857 units related to the May 2012 offering indicated
below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On May 25, 2012 the Company entered into a bridge note with
a third party for $300,000. Interest on the note is $15,000 and the note was paid in June 2012. Additionally, the Company issued
50,000 warrants with the note with an exercise price of $0.50 per share. In connection with this note, the Company paid to the
broker, a 7% commission and 200,000 warrants with an exercise price of $0.50 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On May 22, 2012 the Company entered into a bridge note with
a third party for $200,000. The note and the related interest of $10,000 was repaid in June 2012. In connection with the note,
the Company paid loan origination fees of $10,000 and also issued 380,000 warrants with a term of 5 years and an exercise price
of $0.50 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On May 31, 2012, the Company completed the sale of units pursuant
to a Securities Purchase Agreement dated May 24, 2012, between the Company and certain investors. The total units sold by the Company
consisted of (i) 8,904,287 shares of the Company's 8% convertible preferred stock; (ii) Series C warrants to purchase 8,904,287
shares of the Company's common stock which have a five-year term and an initial per share exercise price of $0.50; (iii) Series
D warrants to purchase up to 4,452,144 shares of common stock which have a 90 day term and a per share exercise price of $0.35;
and (iv) Series E warrants to purchase up to 4,452,144 shares of common stock which have a five-year term and per share exercise
price of $0.50. These units were sold for $0.35 per unit resulting in gross proceeds of $3,116,500. The sale included $225,000
from investors that converted existing debt into the offering. In connection with this offering, the Company paid fees to its placement
agent consisting of a) cash fees equivalent to 8% of the gross proceeds; b) 5-year warrants equivalent to 8% of the units sold
and c) 300,000 restricted shares.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="margin: 0"></P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">To the Board of Directors</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Luxeyard, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Los Angeles, CA</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We have audited the accompanying consolidated balance sheet
of Luxeyard, Inc. and its subsidiaries (collectively the &ldquo;Company&rdquo;) as of December 31, 2011 and the related consolidated
statements of operations, stockholders&rsquo; deficit and cash flows for the period from April 20, 2011 (inception) to December
31, 2011. These financial statements are the responsibility of the Company&rsquo;s management. Our responsibility is to express
an opinion on these financial statements based on our audit.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We conducted our audit in accordance with 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 misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit
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&rsquo;s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Luxeyard, Inc. and its subsidiaries as of December
31, 2011 and the results of their operations and their cash flows for the period from April 20, 2011 (inception) to December
31, 2011 in conformity with accounting principles generally accepted in the United States of America.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company incurred operating losses and negative operating cash flows which raise substantial doubt about its ability to continue
as a going concern. Management&rsquo;s plans regarding those matters are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">/s/ MaloneBailey, LLP</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">www.malone-bailey.com</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Houston, Texas&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">April 16, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>



<P STYLE="margin: 0"></P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Luxeyard, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED BALANCE SHEET</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, <BR>2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 85%; padding-left: 9pt">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">154,400</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Restricted cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">150,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">600</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,466</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Prepaid expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">16,376</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Total Current Assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">326,842</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Property and equipment, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">16,869</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">TOTAL ASSETS</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">343,711</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">LIABILITIES AND STOCKHOLDERS' DEFICIT</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Current Liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">63,426</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accrued liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">158,206</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Deferred revenue</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,701</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 0.25in">Derivative liability</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">158,758</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Total Liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">390,091</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Commitments and contingencies</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt"></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Stockholders' Deficit:&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Common stock, $0.0001 par value.100,000,000 authorized shares; 63,290,000 issued and outstanding shares at December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,329</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Additional paid in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">985,738</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,038,447</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Total Stockholders'&nbsp; Deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(46,380</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt">TOTAL LIABILITIES AND STOCKHOLDERS'&nbsp; DEFICIT</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">343,711</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Luxeyard, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENT OF OPERATIONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For the Period<BR>
From&nbsp;April 20,<BR>
2011&nbsp;(Inception)<BR>
To&nbsp;December 31,<BR>
2011</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">REVENUE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 82%; text-align: left; padding-bottom: 1pt">Total Revenue</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 15%; border-bottom: Black 1pt solid; text-align: right">2,038</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">COST OF GOODS SOLD</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Cost of Sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,322</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">GROSS LOSS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(284</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">OPERATING EXPENSES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Selling, general and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">953,143</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stock compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">84,325</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">695</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total Operating Expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,038,163</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt">NET LOSS</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,038,447</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Basic and Diluted Loss Per Share</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(0.08</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">Weighted Average Outstanding Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: right">12,827,921</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Luxeyard, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENT OF STOCKHOLDERS'
DEFICIT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the Period From April 20, 2011 (Inception)
To December 31, 2011</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Additional</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Total</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Common
    Stock</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Paid-In</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Retained</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Stockholders</FONT></TD><TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Amount</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Capital</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Earnings</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Deficit</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Balance April 20, 2011</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 45%; text-align: left"><FONT STYLE="font-size: 8pt">Common stock issued to original Top Gear stockholders</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">27,540,000</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">2,754</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">(2,754</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Common stock issued in recapitalization</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">30,350,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">3,035</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(3,035</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Common stock issued for cash, net of issuance costs</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">4,312,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">431</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">848,569</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">849,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Conversion of related party bridge notes into common stock</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">575,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">58</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">114,943</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">115,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Conversion of third party bridge notes into common stock</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">512,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">51</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">102,449</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">102,500</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Derivative liability related to warrants</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(158,758</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">(158,758</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Stock compensation expense</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">84,325</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">84,325</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Net loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;&nbsp;&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">-</FONT></TD><TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">(1,038,447</FONT></TD><TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">(1,038,447</FONT></TD><TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Balance December 31, 2011</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">63,290,000</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">6,329</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">985,738</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(1,038,447</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"><FONT STYLE="font-size: 8pt">(46,380</FONT></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 80; Value: 2 -->
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    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Luxeyard, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONSOLIDATED STATEMENT OF CASH FLOWS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">For The Period<BR>
From&nbsp;April 20,<BR>
2011&nbsp;(Inception)<BR>
To&nbsp;December 31, <BR>
2011</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Cash flows from operating activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 82%; text-align: left">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">(1,038,447</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Adjustments to reconcile net income to net cash used in operating activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 9pt">Depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">695</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Stock compensations expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">84,325</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Changes in operating assets and liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(600</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 0.25in">Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(5,466</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 0.25in">Prepaids</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,376</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">63,426</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 0.25in">Accrued liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">188,962</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 0.25in; padding-bottom: 1pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">9,701</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash used in operating activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(713,780</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Cash flows from investing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Purchase of equipment and leasehold improvements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(17,564</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash used in investing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(17,564</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Cash flows from financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Proceeds from debt</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">280,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Proceeds from sale of common stock</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">605,744</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Net cash provided by financing activities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">885,744</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Net decrease in cash and cash equivalents</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">154,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-left: 9pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt; padding-left: 9pt">Cash and cash equivalents at beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt; padding-left: 9pt">Cash and cash equivalents at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">154,400</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Supplemental disclosures of cash flow information</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Cash paid for interest</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Cash paid for income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Non cash financing activities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Conversion of bridge notes into common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">217,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Derivative liability related to warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">158,758</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-left: 9pt">Common stock issued to original TIGR stockholders and recapitalization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,789</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-left: 9pt">Bridge notes settled directly from proceeds from sale of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part
of these consolidated financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>



<P STYLE="margin: 0"></P>

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<P STYLE="margin: 0"></P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>LUXEYARD INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>DECEMBER 31, 2011 </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>NOTES TO FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>1.&nbsp;&nbsp;</B>B<B>asis of Presentation and Nature of Operations
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Basis of Presentation </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Luxeyard Inc., (the &ldquo;Company&rdquo;,
&ldquo;we&rdquo; or &ldquo;our&rdquo;), a Delaware Corporation, is an internet company selling luxury goods on a flash web site.
Luxeyard, Inc. is the parent company of the wholly owned subsidiaries, LY Retail, LLC (&ldquo;LY Retail Texas&rdquo;), incorporated
under the laws of the State of Texas on April 20, 2011 and LY Retail, LLC (&ldquo;LY Retail&rdquo;) incorporated in the State of
California on November 8, 2011. The Company has adopted a fiscal year end of December 31.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Nature of Operations </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, Top Gear Inc., a Delaware
corporation (&ldquo;Top Gear&rdquo;) acquired all of the membership units of LY Retail Texas on April 20, 2011. LY Retail Texas
exchanged all of its membership for the issuance of 1,785,294 shares (30,350,000 shares post-split) of Top Gear&rsquo;s common
stock pursuant to a Securities Exchange Agreement between LY Retail Texas, LY Retail Texas&rsquo;s former members, Top Gear and
the former principal stockholders of Top Gear.&nbsp;&nbsp;As a result of this transaction, LY Retail Texas became a wholly-owned
subsidiary of Top Gear and its former members became the controlling stockholders of Top Gear.&nbsp;&nbsp;The transaction was accounted
for as a reverse merger and recapitalization of Top Gear affected by a securities exchange, wherein LY Retail Texas is considered
the acquirer for accounting and financial reporting purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Immediately prior to the securities exchange,
Top Gear contributed substantially all of its assets and liabilities to a subsidiary and then spun out the subsidiary to its former
controlling stockholders in exchange for the cancellation of a total of 7,000,000 shares (pre-split) of our common stock previously
held by them.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Concurrently with this transaction, LY
Retail was incorporated in the State of California as a wholly owned subsidiary of the Company on November 8, 2011 and all of the
operating activity of the Company was transferred to LY Retail and LY Retail Texas ceased all activity. At year end LY Retail and
LY Retail Texas are wholly owned subsidiaries of Top Gear.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 9, 2012, Top Gear filed a Certificate
of Amendment to our Articles of Incorporation to change the corporate name from &ldquo;Top Gear, Inc.&rdquo; to &ldquo;Luxeyard,
Inc.&rdquo; The amendment was effective as of January 9, 2012. The name change was declared effective by Financial Industry Regulatory
Authority, or FINRA, as of February 13, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Going Concern </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate
continuation of the Company as a going concern. For the period ended December 31, 2011, the Company has incurred operating losses
and negative operating cash flows which raise doubt on its ability to continue as a going concern. The continuation of the Company
as a going concern is dependent upon  the ability of the Company to obtain necessary equity financing to continue operations,
and the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and
these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be unable to continue as a going concern.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>2.</B>&nbsp;&nbsp;<B>Significant Accounting Policies
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Principles of Consolidation </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The consolidated financial statements include
the accounts of Luxeyard, Inc. and its wholly-owned subsidiaries, LY Retail Texas and LY Retail. All significant intercompany accounts
and transactions have been eliminated in consolidation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Use of Estimates</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The financial statements are prepared on
the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of December 31, 2011, and expenses for the period ended December 31, 2011, and cumulative from inception.
Actual results could differ from those estimates made by management.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cash and Cash Equivalents</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For purposes of reporting within the statement
of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all
highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Restricted Cash</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Restricted cash represents proceeds from the sale of the Company&rsquo;s
common stock which is held in escrow as of December 31, 2011. These were released to the Company on February 10, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Accounts Receivable and Allowance for Doubtful Accounts</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&rsquo;s accounts receivable
are derived from amounts due from the credit card company that processes the credit card transactions from customers. Since accounts
are settled daily, the balance represents one day&rsquo;s sales. <FONT STYLE="color: black">The Company records an allowance for
uncollectible accounts which reduces the stated value of receivables on the balance sheet. This allowance is calculated based on
a historical estimate. The allowance for uncollectible accounts at December 31, 2011 was $0.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Property and Equipment</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; color: #231F20">Property and equipment
are recorded at cost. Depreciation and amortization are provided using the straight-line method over their estimated useful lives,
generally three to seven years. Leasehold improvements are amortized over their estimated useful economic lives or the term of
the lease, whichever is shorter. Management periodically evaluates economic lives in order to determine recoverability in light
of current technological conditions and expected cash flows. Maintenance and repairs are charged to operating expenses as incurred.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Revenue Recognition</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We recognize revenue from product sales
when the following four criteria are met: pervasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the selling price is fixed or determinable, and collectability is reasonably assured.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Product sales represent revenue from the
sale of products and related shipping fees where we are the seller of record. Product sales and shipping revenues, net of promotional
discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales
to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery
to the carrier.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We record and report revenue on the gross
amount billed to customers when the following indicators are met:</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we are the primary obligor in the transaction</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we are subject to inventory risk and credit risk for amount billed to the customer</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD><TD STYLE="text-align: justify">we have latitude in establishing prices and selecting suppliers</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Deferred Revenue</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Deferred revenue represents all payments
received from customers in excess of revenue earned based on money received for products that have not shipped.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Cost of Sales</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Cost of sales consists primarily of direct
costs associated with the goods and services the Company provides. Shipping and handling costs billed to customers are included
in revenues. Shipping and handling costs are reported as a component of cost of sales.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Sales and Marketing</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Sales and marketing costs consist primarily
of payroll and related expenses for personnel engaged in marketing, customer service and sales functions, advertising and promotional
expenditures and payments made to agencies for emails and other marketing activities and advertising expense.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Advertising and other promotional costs,
are expensed as incurred,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Loss per Common Share</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Basic loss per share is computed by dividing
the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during
the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding if potential common shares had been issued and
if the additional common shares were dilutive. Basic and diluted earnings per share for the period ended December 31, 2011 are
the same as any incremental common stock equivalent would be anti-dilutive.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Income Taxes</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company accounts for income taxes pursuant
to FASB ASC 740. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified
according to the financial statement classification of the assets and liabilities generating the differences.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company maintains a valuation allowance
with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing
the deferred tax asset and taking into consideration the Company&rsquo;s financial position and results of operations for the current
period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward
period under the Federal tax laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Changes in circumstances, such as the Company
generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change
in the valuation allowance will be included in income in the year of the change in estimate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company also accounts for uncertain
tax positions in accordance with ASC 740 which addresses how we should recognize, measure and present in our financial statements
uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, the Company
can recognize a tax benefit only if it is &ldquo;more likely than not&rdquo; that a particular tax position will be sustained upon
examination or audit. To the extent the &ldquo;more likely than not&rdquo; standard has been satisfied, the benefit associated
with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. No liability
for unrecognized tax benefits was recorded as of December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Fair Value of Financial Instruments</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Financial instruments are recorded at fair
value in accordance with the standard for &ldquo;Fair Value Measurements codified within ASC 820.&rdquo; Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to
valuation methodologies used to measure fair value:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 1</B>&mdash;Valuations based on
quoted prices for identical assets and liabilities in active markets.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 2</B>&mdash;Valuations based on
observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Level 3</B>&mdash;Valuations based on
unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment. Our derivative liabilities are classified as level 3.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Level 1</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Level 2</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Level 3</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 55%; text-align: left; padding-bottom: 1pt">Derivative liability - warrants</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right; width: 12%">-</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right; width: 12%">-</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 12%; text-align: right; border-bottom: Black 1pt solid">158,758</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">158,758</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of the warrant liabilities
at inception and at December 31, 2011 was approximately $158,000, accordingly, we did not recognize any derivative gain or loss
when the instruments were marked to market at year-end.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-weight: normal"><I>Share-Based
Payments</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">The
Company accounts for share-based awards to employees in accordance with FASB ASC 718 &ldquo;<I>Stock Compensation&rdquo;</I>. </FONT>Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: #333333">Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein </FONT>such awards are expensed over the period
in which the related services are rendered at their fair value.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Recent Accounting Pronouncements</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>3.&nbsp;&nbsp;Merger</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B><I>&nbsp;</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 8, 2011, the Company entered
into a series of transactions pursuant to which it acquired LY Retail Texas, spun-out the Company&rsquo;s prior operations from
the Company&rsquo;s former principal stockholders, directors and officers, and completed a private offering of its securities.
&nbsp;&nbsp;The following summarizes the foregoing transactions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Acquisition of</I>. &nbsp;&nbsp;The
Company acquired all of the membership interests&nbsp;of LY Retail Texas in exchange for the issuance of 30,350,000 shares of
the Company&rsquo;s common stock pursuant to a Securities Exchange Agreement between the Company, its former principal stockholders,
LY Retail Texas and the former members of LY Retail Texas.&nbsp;&nbsp;As a result of this transaction, LY Retail Texas became
our wholly owned subsidiary and the former members of LY Retail Texas became our controlling stockholders.&nbsp;&nbsp;The transaction
was accounted for as reverse merger and a recapitalization effected by a securities exchange, wherein LY Retail Texas is considered
the acquirer for accounting and financial reporting purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Reorganization and Spin-Out
of Top Gear Business.</I> &nbsp;&nbsp;Immediately prior to the acquisition of LY Retail Texas, the Company contributed substantially
all of our assets to SpinCo, and, in exchange, SpinCo assumed all of the Company&rsquo;s liabilities.&nbsp;&nbsp;In addition,
the Company transferred all of its ownership interest in SpinCo to Shalom and Bergman in exchange for the cancellation of a total
of 119,000,000 shares of the Company&rsquo;s common stock previously held by Shalom and Bergman.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Financing Transactions.</I>
&nbsp;&nbsp;Immediately following the acquisition of LY Retail Texas, the Company completed a private offering of units consisting
of an aggregate of (i) 3,150,012 shares of the Company&rsquo;s common stock, (ii) Series A warrants to purchase 1,575,000 shares
of common stock which have a five-year term and a per share exercise price of $ 0.30, and (iii) Series B warrants to purchase
1,575,000 shares of common stock which have a five-year term and a per share exercise price of $ 0.60.&nbsp;&nbsp; The aggregate
purchase price of the units was approximately $630,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On December 15, 2011, the Company
completed a second private offering of (i) the aggregate number of shares of common stock, $0.0001 par value per share, of the
Company at a per share purchase price of $0.20 in an aggregate of 2,250,000 shares of Common Stock (ii) a five year warrant to
initially acquire up to 1,125,000 of additional shares of Common Stock at an exercise price of $0.30 per share Series A Warrants
(iii) a five year warrant to initially acquire up to 1,125,000 of additional shares of Common Stock at an exercise price of $0.60
per share the &ldquo;Series B Warrants&rdquo;. The aggregate purchase price of the units was approximately $450,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><B><I>Exchange of&nbsp;Bridge
Notes</I></B><I>. </I>&nbsp;&nbsp;Certain of the Subscribers (each, a &ldquo;Bridge Investor&rdquo; and collectively the &ldquo;Bridge
Investors&rdquo;) delivered promissory notes issued by LY Retail Texas prior to the securities exchange mentioned above (each,
a &ldquo;Bridge Note&rdquo; and collectively the &ldquo;Bridge Notes&rdquo;) as payment of such Bridge Investor&rsquo;s purchase
price for the units.&nbsp;&nbsp;To the extent the principal amount of a Bridge Investor&rsquo;s Bridge Note was greater than such
Bridge Investor&rsquo;s purchase price for the units, the Company, on behalf of LY Retail Texas, paid the remaining principal
amount of such Bridge Note from the proceeds of the Offering.&nbsp;&nbsp;Accordingly, Bridge Notes in the aggregate principal
amount of $217,500 were exchanged for units in the Offering and the Company paid $62,500 of the remaining principal amount of
the Bridge Notes to the Bridge Investors out of the proceeds from the Offering.&nbsp;&nbsp;As a result, the Bridge Notes are deemed
to be cancelled and are of no further force and effect.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Forward Split.</I> &nbsp;&nbsp;
On February 14, 2012 the Company effectuated a 17:1 forward stock split of its common stock.&nbsp;&nbsp;The forward split was
retroactively applied resulting in a price per share of $0.20; (ii) an exercise price of the Series A Warrants of $0.30 per share;
and (iii) the exercise price of the Series B Warrants of $0.60 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Registration Rights Agreement</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On the Closing Date and in connection
with Offering, we entered into a registration rights agreement (the &ldquo;Registration Rights Agreement&rdquo;) with the Subscribers
granting the Subscribers piggy-back registration rights with respect to the Shares and the shares of common stock underlying the
Warrants (the &ldquo;Warrant Shares&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Lock-Up Agreements</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">On the Closing Date and in connection
with Offering, we entered into lock-up agreements (collectively, the &ldquo;Lock-Up Agreements&rdquo;) with each of Braden Richter,
our newly appointed President and Chief Executive Officer and member of our Board of Directors, Kevin Walker, our newly appointed
Chief Financial Officer, Chief Operating Officer and&nbsp;Secretary, Jerry Wilkerson, our newly appointed Chief Technology and
Information Officer, Joshua Thompson, our newly appointed Chief Marketing Officer, and Khaled Alattar, one of our new principal
stockholders, pursuant to which each of them agreed not to transfer any of our capital stock held directly or indirectly by them
for an eighteen month period following the closing of the Offering.&nbsp;&nbsp;In addition, we entered into a lock-up agreement&nbsp;&nbsp;(the
&ldquo;Lock-Up/Leak-Out Agreement&rdquo;) with Amir Mireskandari, our newly appointed Chairman of our Board of Directors and one
of our new principal stockholders, pursuant to which&nbsp;he agreed not to transfer any of our capital stock held directly or indirectly
by&nbsp;him for a nine month period following the closing of the Offering and for the nine months thereafter to limit any transfers
to 50,000 shares of common stock in any 30 day period and 10,000 shares of common stock on any single day.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><I>Warrants</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Warrants associated with the
Round 1 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our
common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.&nbsp;&nbsp;The Series B
Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an initial per share
exercise price of $0.60, subject to adjustment set forth below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Warrants associated with the
Round 2 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our
common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.&nbsp;&nbsp;The Series B
Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our common stock at an initial per share
exercise price of $0.60, subject to adjustment set forth below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">The exercise prices of the Series
A Warrants and Series B Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends,
distributions, reclassifications, mergers or other corporate changes.&nbsp;&nbsp;In addition, subject to certain exceptions, if
at any time after the respective Closing Dates, the Company issues or sells any shares of its common stock at a price per share
less than the exercise price of the applicable Warrant, then immediately after such new issuance, the exercise price of the applicable
Warrant then in effect shall be reduced to an amount equal to the price per share of such new issuance.&nbsp;&nbsp;If the Warrants
are not registered with the Securities Act, the Warrants can be exercised on a cashless basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Anti-dilution features of the warrants require derivative
accounting. ( See Note 11)</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>4.&nbsp;&nbsp;Property and Equipment</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Property and equipment consists of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-align: left">Furniture and fixtures</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">7,928</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,636</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,564</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less:&nbsp; Accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(695</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 0.25in">Net carrying value</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">16,869</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>5.&nbsp;&nbsp;Accrued Liabilities </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in">Accrued liabilities consist of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 70%; font: 10pt Times New Roman, Times, Serif; margin-left: 1in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-align: left">Accrued marketing costs</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">100,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Accrued salary and other expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">58,206</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">158,206</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>6.&nbsp;&nbsp;Income Taxes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company&rsquo;s net deferred income tax asset as of December
31, 2011, after applying enacted corporate income tax rates, are as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 82%; text-align: left">Net operating loss carry forward</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">333,943</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(333,943</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">-</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of December 31, 2011, the Company has
unused net operating loss carryforwards of approximately $954,000 which will begin to expire in 2031. The Company provided a full
valuation allowance to the deferred tax asset as of December 31, 2011 because it is not presently known whether future taxable
income will be sufficient to utilize the loss carryforwards.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Tax Reform Act of 1986 limits the use
of net operating loss and tax credit carry-forwards in certain situations where changes occur in the stock ownership of a company.
In the event the Company has a change in ownership, utilization of the net operating loss carry-forwards could be restricted.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>7.&nbsp;&nbsp;&nbsp;Related Party Transactions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company's CEO and Director is related
to the sublessor of the 8884 Venice Blvd. (See Note 12).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Steve Beauregard, our COO is the founder
and a majority stockholder in Regard Solutions, Inc., (&ldquo;Regard&rdquo;). We have entered into an agreement with Regard for
Technical Services and Project Management. The Company incurred $90,623 in expense from Regard of which $83,435 was paid as of
December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Pursuant to the Securities Exchange Agreement,
on November 8, 2011, we issued 30,350,000 common shares to Amir Mireskandari and Khaled Alattar, the former members of LY Retail,
Texas. Immediately following the securities exchange, Mireskandari and Alattar became our principal stockholders. Mr. Mireskandari
was also appointed as the Chairman of our Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Additionally, in connection with our Round
1 and Round 2 Financing, we issued (i) 417,416 shares of our common stock to Mireskandari and 482,584 shares of our common stock
to Alattar; (ii) Series A Warrants exercisable for 208,708 shares of our common stock to Mireskandari and Series A Warrants exercisable
for 241,292 shares of our common stock to Alattar; and (iii) Series B Warrants exercisable for 208,708 shares of our common stock
to Mireskandari and Series B Warrants exercisable for 241,292 shares of our common stock to Alattar. In consideration for the purchase
price for such securities, Mireskandari and Alattar delivered to the Company Bridge Notes in the aggregate principal amount of
$115,000 and cash of $15,000.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Prior to the securities exchange, LY Retail
Texas and Mireskandari and Alattar entered into Bridge Notes in the aggregate principal amount of $115,000. As set forth above,
such Bridge Notes were exchanged for units in the Offering.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>8.&nbsp;&nbsp;Bridge Notes</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On various dates in September and October
2011, the Company issued promissory notes in the aggregate principal amount of $280,000 (collectively, the &ldquo;Bridge Notes&rdquo;)
to certain investors. These notes bear no interest and have an average term of 30 days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As disclosed in Notes 3 and 7, $217,500
of these notes were settled with units issued from the Company&rsquo;s private offering and the balance of $62,500 was paid directly
from proceeds of the private offering. No gain or loss was recognized on the settlement of the Bridge Notes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>9.&nbsp;&nbsp;Commitments and Contingencies</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Operating Leases </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On September 26, 2011 the Company entered
into an operating lease for office space in Marina Del Rey California (the &ldquo;Glencoe&rdquo; lease). The lease term commenced
October 1, 2011 and ends September 30, 2011. Rent expense for the year 2011 was $39,829.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Minimum Lease Expense </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Subsequent to year end, the Company entered
into three leases for office and warehouse space in Los Angeles, California (&ldquo;Venice&rdquo; lease); in Brooklyn, New York
(&ldquo;New York&rdquo; lease) and a Corporate Apartment in New York, New York (&ldquo;Wall Street&rdquo; lease). See Subsequent
Events Note. Minimum lease expense is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center">Year</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Glencoe</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Venice</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">New York</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Wall Street</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Total</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 16%; text-align: right">2012</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">43,273</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">105,197</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">43,542</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">16,170</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">208,182</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: right">2013</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">114,761</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,458</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">126,219</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: right">2014</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">9,563</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">9,563</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: right">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">43,273</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">229,521</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">55,000</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">16,170</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">343,964</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Severance Agreement</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In connection with the termination of Kevin
Walker as our executive officer, we entered into a severance agreement with LY Retail and Kevin Walker on December 20, 2011 pursuant
to which we agreed to pay Mr. Walker any unpaid salary, unreimbursed expenses and a severance payment equivalent to three months
of Mr. Walker&rsquo;s base salary. The severance pay is payable in two installments of $13,334 and one installment of $11,688 for
a total amount of $38,352. Mr. Walker was also granted an option to purchase 400,010 shares of common stock at an exercise price
of $0.20 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Marketing Agreements</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November the Company engaged XL Marketing,
Corporation to provide email drops to various target markets and to provide other marketing related series. Marketing expense related
to this contract will be approximately $180,000 per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On November 23, 2011 the Company entered
into to a nine month agreement with Placements Media, Inc. (&ldquo;Placements&rdquo;) to provide marketing consulting services.
The compensation for the performance based component of the contract is $12,000 in December 2011 and January 2012 and $15,000 per
month thereafter. Placements also earns commission based on sliding scale percentages applied on the XL Marketing spend with rates
ranging from 4% to 18%. For the period ended December 31, 2011, Placements earned commissions amounting to $53,557. Additionally,
Placements can earn options of up to 50,000 shares of common stock based on certain membership milestones.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Technology Infrastructure Agreement
</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November, 2011, LY Retail entered into
an agreement with Regard Solutions Corporation for project management and technical services for a monthly fee of $35,000 for a
period of two months. This agreement was amended on December 31, 2011 to extend the term to April 30, 2012 for a monthly fee of
$42,531. Technical fees incurred for the period ended December 31, 2011 amounted to $90,623.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Litigation</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">From time to time, the Company is party
to various litigation and administrative proceedings relating to claims arising from its operations in the normal course of business.
Based on the information presently available, management believes that resolution of these matters will not have a material adverse
effect on the Company&rsquo;s business, results of operations, financial condition, or cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">10.&nbsp;&nbsp;Stock
Option Plan</FONT></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">In September, 2011, the
Company adopted the 2011 Stock Option Plan (the Plan). The Plan provides for the granting of options to purchase shares of common
stock to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options (ISOs)
or non-qualified stock options (NSOs). ISOs may be granted only to Company employees (including officers and directors who may
also be employees). NSOs may be granted to Company employees and consultants. The Company reserved 13,005,000 shares of common
stock for issuance under the Plan as of December&nbsp;31, 2011, of which 8,876,546 were subject to outstanding options and other
awards and 4,128,454 were available for future grants of share-based awards.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">Options under the Plan
may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)&nbsp;the exercise price of an ISO and NSO shall not
be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, and (ii)&nbsp;the exercise
price of an ISO and NSO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the
date of grant. The Board of Directors determined the value of the underlying stock by considering a number of factors, including
historical and projected results, the risks the Company faced at the time of issuance, the rights of the Company&rsquo;s preferred
securities and the lack of liquidity of the Company&rsquo;s common stock. Options granted under the Plan generally vest ratably
over a 36 month period. It is the Company&rsquo;s policy to grant stock options to employees and nonemployees at exercise prices
equal to the fair value of the underlying stock at the date of the grant. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The following is a summary of stock options
granted, canceled, and outstanding under the plan for the year ended December&nbsp;31, 2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of&nbsp;Stock <BR>Options</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise <BR>Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted- <BR>Average <BR>Exercise&nbsp;Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>average <BR>remaining <BR>contractual <BR>life&nbsp;(years)</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Outstanding at April 1, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 40%; text-indent: -0.35pt; padding-left: 0.12in">Granted</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">10,426,538</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">0.20 - 0.30</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">0.21</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">9.77</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.35pt; padding-left: 0.12in">Cancelled</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,549,992</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-indent: -0.35pt; padding-left: 0.12in; padding-bottom: 1pt">Exercised</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-indent: -0.35pt; padding-left: 0.12in; padding-bottom: 1pt">Balance at December 31, 2011</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">8,876,546</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">$&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp; 0.20-0.30</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">0.21</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">9.77</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following is a summary of stock options vested as of December&nbsp;31,
2011:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 92%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Vested Options</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise <BR>Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted- <BR>Average <BR>Exercise Price</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>Weighted <BR>average <BR>remaining <BR>contractual <BR>life (years)</B></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-indent: -9.35pt">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 12%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>December&nbsp;31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,868,143</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$&nbsp;</TD><TD STYLE="text-align: right">&nbsp; 0.20 - 0.30</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.20</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">9.77</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">No options are exercisable
until the expiration of the Lock-Up agreement on November 8, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">At December&nbsp;31,
2011, 4,128,454 options remained available for future grants under the Plan. The weighted-average grant date fair value of options
granted during the period ended December&nbsp;31, 2011 was $ 0.03. Outstanding options as of December 31, 2011 have an intrinsic
value of zero.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">The options
were valued using the Black-Scholes-pricing model. Significant assumptions used in the valuation include the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 75%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.25in">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="text-align: left">Expected term</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">5.40 - 5.84 years</TD><TD NOWRAP STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD NOWRAP STYLE="text-align: left">Expected volatility</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">415% - 447</TD><TD NOWRAP STYLE="text-align: left">%.&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="text-align: left">Risk free interest rate</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0.82% - 2.03</TD><TD NOWRAP STYLE="text-align: left">%&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD NOWRAP STYLE="width: 79%; text-align: left">Expected dividend yield</TD><TD NOWRAP STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 18%; text-align: right">0</TD><TD NOWRAP STYLE="width: 1%; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">During the period ended
December 31, 2011, stock compensation expense recognized under the plan was $84,325.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">As of December&nbsp;31,
2011 there was $199,679 of unrecognized compensation related to stock options granted, which is expected to be recognized over
a weighted-average period of 2.8 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>11.&nbsp;&nbsp;Warrants </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Warrants associated with the Round 1 financing
-The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an
initial per share exercise price of $0.30, subject to adjustment as set forth below.&nbsp;&nbsp;The Series B Warrants have a five-year
term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an initial per share exercise price of $0.60.
At the closing date of November 8, 2011 Series A warrants had a fair market value of $46,304 and Series B warrants had a fair market
value of $46,304. The fair market value of the warrants was computed using the Black-Scholes pricing model with the following assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Risk-free interest rate 0.92 %</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Dividend yield 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Volatility factor 429%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Expected life (years) 5 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On December 15, 2011, warrants associated
with the Round 2 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares
of our common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.&nbsp;&nbsp;The Series
B Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our common stock at an initial per
share exercise price of $0.60. At the closing date of December 15, 2011 Series A warrants had a fair market value of $33,075 and
Series B warrants had a fair market value of $33,075. The fair market value of the warrants was computed using the Black-Scholes
pricing model with the following assumptions:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Risk-free interest rate 0.86%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Dividend yield 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Volatility factor 416%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Expected life (years) 5 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;At December 31, 2011,
the warrants had a fair value of $158,758 and this fair value was included in the derivative liability balance. There was no difference
in fair value from the grant date to December 31, 2011. The following assumptions were used in the Black-Sholes option pricing
model at December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Risk-free interest rate 0.83%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Dividend yield 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Volatility factor 412%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify">Expected life (years) 4.86 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The weighted average exercise price is
$0.45 for all outstanding warrants. The weighted average remaining contractual term for all warrants outstanding is 4.86 years.
As of December 31, 2011, the outstanding warrants had an intrinsic value of zero.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>12.&nbsp;&nbsp;Subsequent Events</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Leases </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 26, 2012, the Company subleased
approximately 5,313 square feet of office and warehouse space in Los Angeles California from a related party (&ldquo;Venice&rdquo;
lease). The lease is a twenty four month operating lease with monthly rent expense of $9,564 per month.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 15, 2012, the Company subleased
approximately 5,500 square feet of office and warehouse space in Brooklyn New York in conjunction with the acquisition of eOpulence,
(the &ldquo;New York&rdquo; lease). The lease is one year operating lease with option to extend for 3.5 years. The monthly rent
expense is $4,583.33.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 22, 2012 the Company
leased a corporate apartment in downtown New York. The lease begins April 3, 2012 and is a six month operating lease with
monthly rent expense of $2,695.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Adoption of 2012 Stock Plan </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0in">On February 24,
2012, the Board and majority shareholders of the Company approved the Luxeyard, Inc. 2012 Stock Option Plan (the &ldquo;Plan&rdquo;).
13,050,000 shares of common stock with authorized under this plan. The Plan is intended to recognize the contributions made to
the Company by its associates (including associates who are members of the Board of Directors), directors, consultants and advisors
of the Company or any Affiliate, to provide such persons with additional incentive to devote themselves to the future success of
the Company or an Affiliate, and to improve the ability of the Company or an Affiliate to attract, retain, and motivate individuals
upon whom the Company&rsquo;s sustained growth and financial success depend, by providing such persons with an opportunity to acquire
or increase their proprietary interest in the Company. To this end, the Plan provides for the grant of stock options. Stock options
granted under the Plan may be Non-Qualified Stock Options or ISOs, as provided herein, except that stock options granted to outside
directors and any consultants or advisers providing services to the Company or an Affiliate shall in all cases be Non-Qualified
Stock Options.</P>

<P STYLE="font: normal 10pt Times New Roman, Times, Serif; margin: 0pt 0; font-variant: normal; text-align: justify; text-indent: 0in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>eOpulence Asset Purchase </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 22, 2012 our subsidiary, LY
Retail, purchased the fixed assets of eOpulence, a New York limited liability Company (&quot;eOpulence&quot;) for purchase price
consisting options to purchase 300,000 shares of common stock at an exercise price of $.30 per share. The fair market value of
the stock options at the purchase date was $260,297. The fair value was calculated using the Black Scholes pricing model with
the following assumptions</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Risk-free interest rate -2.7%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Dividend yield 0%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Volatility factor 416%</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Expected life (years) 3.0 years</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Share-based awards</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 27, 2012, in connection with
his employment agreement, the Company granted 200,000 common stock options to our Chief of Business Development Officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 12, 2012, in connection with his
employment agreement, the Company granted 250,000 common stock options to our Executive Vice President of Revenue. He will also
be granted an additional 250,000 on attainment of certain milestones.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On February 28, 2012, the Company engaged
a consultant for institutional financial public relations. As compensation, the Company will pay the consultant 30,000 common shares
per month for a period of one year. Additionally the Company will issue a non-cancellable &ldquo;Option&rdquo; for up to 4 million
shares of outstanding stock at $.80 per share vesting as soon as practicable, subject to shareholder and/or regulatory approval.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On March 1, 2012 the Company retained a
third party as investor relations counsel. The contract is for a minimum of six months for $5,000 a month plus a one-time grant
on the initiation of the engagement of restricted shares of common stock with a fair market value of $30,000 on the contract start
date. A second grant in the like cash value amount will be granted on the achievement of certain milestones.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>Financing </I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">On January 25, 2012, the Company borrowed
cash in the amount $25,000 from one of the Company&rsquo;s shareholders. The loan bears 10 % annual interest and has a maturity
of April 20, 2012.&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of April 16, 2012, we sold an aggregate
of $2,125,000 debentures in the form of convertible notes, which are convertible into 7,083,334 shares of our common stock, with
a conversion price of $0.30 per share, subject to adjustment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

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[{"type": "S-1", "sequence": "1", "filename": "v316150_s1.htm", "description": "FORM S-1", "secsgml_size_bytes": 950312}]
{"company-data": {"conformed-name": "Luxeyard, Inc.", "cik": "0001493587", "assigned-sic": "7389", "irs-number": "300473898", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-182180", "film-number": "12911264"}, "business-address": {"street1": "4063 GLENCOE AVE.", "street2": "SUITE A", "city": "MARINA DEL REY,", "state": "CA", "zip": "90292", "phone": "(323)-488-3574"}, "mail-address": {"street1": "4063 GLENCOE AVE.", "street2": "SUITE A", "city": "MARINA DEL REY,", "state": "CA", "zip": "90292"}, "former-company": {"former-conformed-name": "TOP GEAR INC", "date-changed": "20100607"}}
As filed with the Securities and Exchange
Commission on June 15, 2012
Registration No. 333 -
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
LUXEYARD, INC.
(Exact name of registrant as specified in
its charter)
Delaware
7389
30-0473898
(State or other jurisdiction
of incorporation or
organization)
(Primary Standard
Industrial Classification
Code Number)
(I.R.S. Employer
Identification Number)
8884 Venice Blvd.
Los Angeles, CA 90034
(323) 488-3574
(Address, including zip code, and telephone
number,
including area code, of registrant's
principal executive offices)
Delaware Business Incorporators, Inc.
3422 Old Capital Trail, Suite 700
Wilmington, DE 19808
(302) 996-5819
(Name, address, including zip code, and
telephone number,
including area code, of agent for service)
Copies to:
Richard I. Anslow, Esq.
Anslow & Jaclin LLP
195 Route 9 South, Suite 204
Manalapan, New Jersey 07726
Tel No.: (732) 409-1212
Fax No.: (732) 577-1188
Approximate date of commencement of
proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box:
þ
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement number of the earlier effective registration statement for
the same offering.
¨
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.
¨
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.
¨
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 12b2
of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
þ
(Do not check if a smaller reporting company)
CALCULATION OF REGISTRATION FEE
Title of Each Class Of Securities to be Registered
Amount to
be
Registered
(1)
Proposed Maximum Offering
Price
per share
(2)
Proposed Maximum Aggregate Offering
Price
Amount of
Registration
Fee
Common stock, $0.0001 par value per share
6,141,287
$
1.33
(2)
$
8,167,912
$
936.04
Common stock, $0.0001 par value per share, issuable upon conversion of 8% Convertible Perpetual Preferred Stock
8,904,287
$
0.35
(3)
$
3,116,500
$
357.15
Common stock, $0.0001 par value per share, issuable upon exercise of the warrants
5,400,012
$
0.30
(4)
$
1,620,004
$
185.65
Common stock, $0.0001 par value per share, issuable upon exercise of the warrants
4,452,144
$
0.35
(4)
$
1,558,250
$
178.58
Common stock, $0.0001 par value per share, issuable upon exercise of the warrants
14,246,860
$
0.50
(4)
$
7,123,430
$
816.34
Total
39,144,590
$
2,473.76
(1)
This registration statement includes an indeterminate number of additional shares of common stock
issuable for no additional consideration pursuant to any stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration, which results in an increase in the number of outstanding shares of our common stock.
In the event of a stock split, stock dividend or similar transaction involving our common stock, in order to prevent dilution,
the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a)
under the Securities Act of 1933, as amended.
(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under
the Securities Act of 1933, as amended, using the average of the high and low prices as reported on the OTC Bulletin Board on June
13, 2012 which was $1.33 per share.
(3)
Calculated based upon the conversion price of the 8% preferred stock held by the selling stockholder
named in this Registration Statement.
(4)
Calculated based upon the exercise price of the warrants held by the selling stockholder named
in this Registration Statement.
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission,
acting pursuant to said Section 8(a), may determine.
The information in this
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 prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED June 15 , 2012
39,144,590 Shares of Common Stock
LUXEYARD, INC.
This prospectus covers the sale by the
selling stockholders of up to (i) 8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own
8% Convertible Perpetual Preferred Stock, par value $0.0001 per share, (ii) 441,275 shares of common stock, par value $0.0001 per
share, issuable to the selling stockholders as payment for any dividends on the 8% preferred stock (based on a common stock per
share price of $1.13 per share, the last sale price of our shares as reported by the OTCQB on June 13, 2011, over a two year period
at a 8% dividend per year), (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our
common stock issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share,
(v) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise
price of $0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling
stockholders at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the
Series D warrants held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common
stock issuable upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share,
and (ix) 890,429 shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at
an exercise price of $0.50 per share. The shares being sold by the selling stockholders were issued to them in private placement
transactions which were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended
(the "Securities Act"). Our 8% preferred stock, common stock and warrants are more fully described in "Description
of Securities."
These shares will be offered for sale by
the selling shareholders in accordance with the "Plan of Distribution." We will not receive any proceeds from sales
of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash,
if at all, we will receive the exercise price of the warrants. We will pay the expenses incurred in connection with the offering
described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by
selling stockholders.
Our common stock is presently traded on
the OTCQB (the "OTCQB") under the symbol LUXR. On June 13, 2012, the last sale price of our shares as reported by the
OTCQB was $1.13 per share. The prices at which the selling stockholders may sell the shares of common stock that are part of this
offering may be market prices prevailing at the time of sale, at negotiated prices, at fixed prices, or at varying prices determined
at the time of sale. See "Plan of Distribution."
Investing in our common stock
involves a high degree of risk. See "Risk Factors" beginning on page 8 to read about factors you should consider
before investing in shares of our common stock.
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.
The date of this prospectus is [
]
, 2012
2
TABLE
OF CONTENTS
PROSPECTUS SUMMARY
4
RISK FACTORS
8
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
18
DIVIDEND POLICY
18
USE OF PROCEEDS
18
DILUTION
19
PENNY STOCK CONSIDERATIONS
19
SELLING STOCKHOLDERS
19
DESCRIPTION OF BUSINESS
25
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
36
DIRECTORS AND EXECUTIVE OFFICERS
42
EXECUTIVE COMPENSATION
46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
50
DESCRIPTION OF SECURITIES
52
PLAN OF DISTRIBUTION
57
SHARES ELIGIBLE FOR FUTURE SALE
57
LEGAL MATTERS
58
EXPERTS
58
WHERE YOU CAN FIND MORE INFORMATION
58
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF  SECURITIES ACT LIABILITIES
59
INDEX TO FINANCIAL STATEMENTS
F-1
Please read this prospectus carefully.
It describes our business, our financial condition and results of operations. We have prepared this prospectus so that you will
have the information necessary to make an informed investment decision.
You should rely only on information contained
in this prospectus. We have not authorized any other person to provide you with different information. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information
in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that
date.
3
PROSPECTUS SUMMARY
This summary highlights selected information
contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing
in the common stock. You should carefully read the entire prospectus, including "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, before
making an investment decision. Our actual results may differ significantly from the results discussed in these forward-looking
statements as a result of certain factors, including those described in "Risk Factors" and "Cautionary Note Regarding
Forward-Looking Statements." All references to "we," "us," "our," and the "company"
mean Luxeyard, Inc.
Business Overview
We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a "flash sale"
or "daily deal" at deep discounts to retail prices.  In January 2012, we launched our website www.Luxeyard.com
and began operations. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. On March
27, 2012, we launched LuxeStyle, our apparel and accessories line.  As our member base and merchant selection increase, we
expect to expand our offerings to include other consumer goods such as travel, gourmet food and beverages, consumer services events
and gift cards.
Each week we conduct several "flash
sale" events on our website in which we feature merchandise at steep discounts to suggested retail prices.  At
the beginning of each event, members receive an email describing the featured products and it directs them to our website to participate.  We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.
In addition to flash sales, we also feature
a "Daily Deal" whereby we offer a single product on our website for a 24 hour period.  Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.  Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.  In
some cases, when our group buy feature is active, as more members participate in the deal, the purchase price decreases.
Group
buying
, also known as collective buying, offers products and services at significantly reduced prices on the condition that
a minimum number of buyers would make the purchase.
Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant's location to the member.
With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.
In April we began a Business to Business
program through which we source containers of goods and sell them to retailers. The retailers are offered products prior to the
arrival of the container shipments and any unsold items from the container shipment are then offered on our website.
We operate in an extremely competitive
"flash sales" space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company's ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.
4
Corporate Information
Our principal executive offices are located
at 8884 Venice Boulevard, Los Angeles, California 90034 and our telephone number is (323) 488-3574. Our website address is
www.Luxeyard.com
.
The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration
statement of which it forms a part. The information on our website is not part of this prospectus.
5
THE OFFERING
Common stock offered by selling stockholders
39,144,590 shares of our common stock including:
        up to (i) 8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii)
        441,275 shares of common stock, par value $0.0001 per share, issuable to the selling stockholders as payment for any dividends
        on the 8% preferred stock, (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our
        common stock issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share,
        (v) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise
        price of $0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling
        stockholders at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the
        Series D warrants held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common
        stock issuable upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share,
        and (ix) 890,429 shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at
        an exercise price of $0.50 per share.
Common stock outstanding before the offering
69,002,253 shares of common stock (1)
Common stock outstanding after the offering
108,146,843 shares of common stock (2)
Use of proceeds
We will not receive any proceeds from the sale of the common stock by the selling stockholders. However, we may receive up to approximately $10,301,634 in the aggregate upon the exercise of the warrants if the holders exercise them for cash. The registration of common stock pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold by the selling stockholders.  We intend to use the proceeds received from any cash exercise of the warrants for working capital and general corporate purposes.
Trading Symbol
LUXR
Risk Factors
The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors".
6
(1)
Based upon the total number of issued and outstanding shares as of June 11, 2012.
(2)
Based upon the total number of issued and outstanding shares as of June 11, 2012, and including (i) 8,904,287 shares of common
stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii) 441,275 shares of common stock, issuable
to the selling stockholders as payment for any dividends on the 8% preferred stock, (iii) 2,700,006 shares of our common stock
issuable upon exercise of Series A warrants, (iv) 2,700,006 shares of our common stock issuable upon exercise of Series B warrants,
(v) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants, (vi) 4,452,144 shares of our common stock
issuable upon exercise of the Series D warrants, (vii) 4,452,144 shares of our common stock issuable upon exercise of the Series
E warrants, and (viii) 890,429 shares of our common stock issuable upon exercise of placement agent warrants.
7
RISK FACTORS
An investment in our common stock involves
a high degree of risk. You should carefully consider the risks described below, together with all of the other information included
in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition
or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may
lose all or part of your investment. You should read the section entitled "Special Note Regarding Forward Looking Statements"
below for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements
in the context of this report.
Risks Related to Our Business
We have a history of operating losses
and there can be no assurance that we can achieve or maintain profitability.
We have a history of operating losses and
may not achieve or sustain profitability. We cannot guarantee that we will become profitable.  Even if we achieve profitability,
given the competitive and evolving nature of the industry in which we operate, we may be unable to sustain or increase profitability
and our failure to do so would adversely affect our business, including our ability to raise additional funds.
Our operating results may fluctuate
significantly and our stock price could decline or fluctuate if our results do not meet the expectation of analysts or investors.
We expect to experience substantial variations
in our net sales and operating results from quarter to quarter.  As a result of fluctuations in our revenue and operating
expenses that may occur, we believe that period-to-period comparisons of our results of operations are not a good indication of
our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations
of securities analysts or investors. In that case, our common stock price could fluctuate significantly or decline.
Our independent registered public
accounting firm has expressed doubt about our ability to continue as a going concern, which may hinder our ability to obtain future
financing.
Our financial statements as of December
31, 2011 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting
firm has issued a report that included an explanatory paragraph referring to our recurring net losses and negative cash flows from
operations and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce
expenditures, and, ultimately, generate additional revenue. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. We are continually evaluating opportunities to raise additional funds through public
or private equity financings, as well as evaluating prospective business partners, and will continue to do so. However, if adequate
funds are not available to us when we need them, and we are unable to enter into some form of strategic relationship that will
give us access to additional cash resources, we will be required to even further curtail our operations which would, in turn, further
raise substantial doubt about our ability to continue as a going concern.
If we fail to acquire and retain
members, our revenue and business will be harmed.
We expect to spend approximately $4,319,715
on online marketing and advertising initiatives relating to member acquisition for the next twelve months and expect to continue
to spend significant amounts to acquire additional members. We must acquire and retain members that purchase our deals in order
to increase revenue and achieve profitability. We cannot assure you that the revenue from members we acquire will ultimately exceed
the cost of acquiring members. If consumers do not perceive our offers to be of high value and quality or if we fail to introduce
new and more relevant deals, we may not be able to acquire or retain members. If we are unable to acquire and retain members who
purchase our deals in numbers sufficient to grow our business, or if members cease to purchase our deals, the revenue we generate
may decrease and our operating results will be adversely affected.
8
In addition, some of our new members are
originated from word-of-mouth or other non-paid referrals including other members, and therefore we must ensure that our members
will remain loyal to our service in order for us to continue receiving those referrals. If our efforts to satisfy our members are
not successful, we may not be able to acquire new members in sufficient numbers to grow our business or we may be required to incur
significantly higher marketing expenses in order to acquire new members. Further, we believe that our success is influenced by
the level of communication and sharing among members. If the level of usage by our member base does not grow as expected, we may
suffer a decline in member growth or revenue. A failure to acquire members or a significant decrease in the level of member usage
after or the launch of our website would have an adverse effect on our business, financial condition and results of operations.
If we fail to initially attract merchants
or fail to add new merchants after the launch of our website, our revenue and business will be harmed.
We depend on our ability to attract and
retain merchants that are prepared to offer products or services on compelling terms through our marketplace. We currently do not
have any long-term arrangements with the vendors to guarantee the availability of deals that offer attractive quality, value and
variety to consumers or favorable payment terms to the Company.  We must attract and then retain merchants in order to
generate and increase revenue and achieve profitability. If merchants do not find our marketing and promotional services effective
or do not believe that utilizing our services provide them with a long-term increase in customers, revenue or profit, they may
not make, or continue to make, offers through our marketplace. In addition, we may experience attrition in our merchants in the
ordinary course of business resulting from several factors, including losses to competitors and merchant closures or bankruptcies.
If we are unable to attract merchants in numbers sufficient to grow our business, or if too many merchants are unwilling to offer
products or services with compelling terms through our marketplace or offer favorable payment terms to us, we may sell fewer deals
and our operating results will be adversely affected.
If our efforts to market, advertise and
promote products and services from our merchants are not successful, or if merchants do not believe that utilizing our services
provides them with a long-term increase in customers, revenue or profit, we may not be able to attract and retain merchants in
sufficient numbers to grow our business or we may be required to incur significantly higher marketing expenses or accept lower
margins in order to attract merchants. A failure to attract merchants, a significant increase in merchant attrition or decrease
in merchant growth would have an adverse effect on our business, financial condition and results of operation.
Our business is highly competitive.  Competition
presents an ongoing threat to the success of our business.
The online group buying market is extremely
competitive and we expect competition in e-commerce generally, and group buying in particular, to continue to increase because
there are no significant barriers to entry. A substantial number of group buying sites that feature similar business models exist
and may continue to emerge. In addition to such competitors, we expect to increasingly compete against other large internet and
technology-based businesses, such as Amazon, Google and Microsoft, each of which has launched initiatives which are directly competitive
to our business. We also expect to compete against other internet sites that are focused on specific communities or interests and
offer discount arrangements related to such communities or interests. We also compete with traditional offline discount services,
as well as newspapers, magazines and other traditional media companies who provide coupons and discounts on products and services.
We believe that our ability to compete
depends upon many factors both within and beyond our control, including the following:
·
the size and composition of our member base and the number of merchants
we feature;
·
the timing and market acceptance of deals we offer, including the
developments and enhancements to those deals offered by us or our competitors;
·
member and merchant service and support efforts;
·
selling and marketing efforts;
·
ease of use, performance, price and reliability of services offered
either by us or our competitors;
9
·
our ability to cost-effectively manage our operations; and
·
our reputation and brand strength relative to our competitors.
Many of our current and potential competitors
have longer operating histories, significantly greater financial, marketing and other resources and larger member bases than we
do. These factors may allow our competitors to benefit from their existing customer or member base with lower customer acquisition
costs or to respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors
may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive
pricing policies, which may allow them to build larger member bases or generate revenue from their member bases more effectively
than we do. Our competitors may offer deals that are similar to the deals we offer or that achieve greater market acceptance than
the deals we offer. This could attract members away from our websites, reduce our market share and adversely impact our revenue.
In addition, we are dependent on some of our existing or potential competitors for banner advertisements and other marketing initiatives
to acquire new members. Our ability to utilize their platforms to acquire new members may be adversely affected if they choose
to compete more directly with us.
If we are unable to retain favorable
terms with our merchants, our revenue may be adversely affected.
The success of our business depends in
part on our ability to attract, retain and increase the number of merchants who use our service.  If merchants decide
that utilizing our services no longer provides an effective means of attracting new customers or selling their goods and services,
they may demand a higher percentage of the gross billings from each deal sold. This would adversely affect our revenue.
In addition, some competitors may accept
lower margins, or negative margins, to attract attention and acquire new members. If competitors engage in group buying initiatives
in which merchants receive a higher percentage of the gross billings than we offer, we may be forced to pay a higher percentage
of the gross billings than we offer, which may reduce our revenue.
Our business relies heavily on email
and other messaging services, and any restrictions on the sending of emails or messages or a decrease in member willingness to
receive messages could adversely affect our revenue and business.
Our business will be highly dependent upon
email and other messaging services. Deals offered through emails and other messages sent by us, or on our behalf by our affiliates,
are expected to generate a substantial portion of our revenue. Because of the importance of email and other messaging services
to our businesses, if we are unable to successfully deliver emails or messages to our members or potential members, or if members
decline to open our emails or messages, our revenue and profitability would be adversely affected. Actions by third parties to
block, impose restrictions on, or charge for the delivery of emails or other messages could also materially and adversely impact
our business. From time to time, internet service providers block bulk email transmissions or otherwise experience technical difficulties
that result in our inability to successfully deliver emails or other messages to third parties. In addition, our use of email and
other messaging services to send communications about our website or other matters may result in legal claims against us, which
if successful might limit or prohibit our ability to send emails or other messages. Any disruption or restriction on the distribution
of emails or other messages or any increase in the associated costs would materially and adversely affect our revenue and profitability.
If our merchants do not meet the
needs and expectations of our members, our business could suffer.
Our business will depend on providing high-quality
luxury deals and our brand and reputation may be harmed by actions taken by merchants that are outside our control. Any shortcomings
of one or more of our merchants, particularly with respect to delivery of products or an issue affecting the quality of the deal
offered or the products or services sold, may be attributed by our members to us, thus damaging our reputation, brand value and
potentially affecting our results of operations. In addition, negative publicity and member sentiment generated as a result of
fraudulent or deceptive conduct by our merchants could damage our reputation, reduce our ability to attract new members or retain
our current members, and diminish the value of our brand.
10
Our business depends substantially
on the continuing efforts of our senior management and other key personnel, and our business may be severely disrupted if we lost
their services.
Our future success heavily depends on the
continued service of our senior management and other key employees. If one or more of our senior executives are unable or unwilling
to continue to work for us in their present positions, we may have to spend a considerable amount of time and resources searching,
recruiting, and integrating the replacements into our operations, which would substantially divert management's attention
from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy.
Moreover, if any of our senior executives joins a competitor or forms a competing company, we may lose customers, suppliers, know-how,
and key employees.
Our senior management's limited
experience managing a publicly traded company may divert management's attention from operations and harm our business.
Our senior management team has relatively
limited experience managing a publicly traded company and complying with federal securities laws, including compliance with recently
adopted disclosure requirements on a timely basis.  Our management will be required to design and implement appropriate
programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do
so could lead to the imposition of fines and penalties and harm our business.
We may be unable to attract and retain
qualified, experienced, highly skilled personnel, which could adversely affect the implementation of our business plan.
Our success depends to a significant degree
upon our ability to attract, retain and motivate skilled and qualified personnel. As we become a more mature company in the future,
we may find our recruiting and retention efforts more challenging. We will be seeking to hire a significant number of personnel,
including certain key management personnel. If we do not succeed in attracting, hiring and integrating excellent personnel, or
retaining and motivating existing personnel, we may be unable to grow effectively. The loss of any key employee, including members
of our senior management team, and our inability to attract highly skilled personnel with sufficient experience in our industries
could harm our business.
Our business is impacted by general
economic conditions and related uncertainties affecting markets in which we operate.
General economic conditions, in particular
conditions that impact consumer spending and construction and industrial activity, could adversely impact our business. These conditions
could result in reduced demand for our deals, increased order cancellations and returns, an increased risk of excess and obsolete
inventories and increased pressure on the prices of our products.
Difficult economic conditions could also
increase the risk of extending credit to our retailers. Although we believe that our use of a commercial factor reduces such risk,
the factor may at any time terminate or limit its approval of shipments to a particular customer, and the likelihood of the factor
doing so may increase as a result of current economic conditions.  Such an action by the factor could result in the loss
of future sales to the affected customer.
We depend on the continued growth
of online commerce.
The business of selling goods and services
over the internet, particularly through coupons, is dynamic and relatively new. Concerns about fraud, privacy and other problems
may discourage additional consumers and merchants from adopting the internet as a medium of commerce. In order to expand our member
base, we must appeal to and acquire members who historically have used traditional means of commerce to purchase goods and services
and may prefer internet analogues to our offerings, such as the retailer's own website. If these consumers prove to be less
active than our earlier members, or we are unable to gain efficiencies in our operating costs, including our cost of acquiring
new members, our business could be adversely impacted.
11
Government regulation of the internet
and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm
our business and results of operations.
We are subject to general business regulations
and laws as well as regulations and laws specifically governing the internet and e-commerce. Existing and future regulations and
laws could impede the growth of the internet or other online services. These regulations and laws may involve taxation, tariffs,
member privacy, anti-spam, data protection, content, copyrights, distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services and the characteristics and quality of services. It is not clear how existing
laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the internet as the
vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues
raised by the internet or e-commerce. In addition, it is possible that governments of one or more countries may seek to censor
content available on our websites and applications or may even attempt to completely block access to our websites. Adverse legal
or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole
or in part, from operating in one or more countries, our ability to retain or increase our member base may be adversely affected
and we may not be able to maintain or grow our revenue as anticipated.
Failure to comply with federal, state
and international privacy laws and regulations, or the expansion of current or the enactment of new privacy laws or regulations,
could adversely affect our business.
A variety of federal and state laws and
regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and
regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign
legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have
been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones
and other mobile devices. We will post privacy policies and practices concerning the collection, use and disclosure of member data
on our websites and applications. Several internet companies have incurred penalties for failing to abide by the representations
made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to
implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice
to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies
or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international
privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings
or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition,
a failure or perceived failure to comply with industry standards or with our own privacy policies and practices could result in
a loss of members or merchants and adversely affect our business. Federal and state governmental authorities continue to evaluate
the privacy implications inherent in the use of third-party web "cookies" for behavioral advertising. The regulation
of these cookies and other current online advertising practices could adversely affect our business.
We may suffer liability as a result
of information retrieved from or transmitted over the internet and claims related to our service offerings.
We may be, and in certain cases have been,
sued for defamation, civil rights infringement, negligence, patent, copyright or trademark infringement, invasion of privacy, personal
injury, product liability, breach of contract, unfair competition, discrimination, antitrust or other legal claims relating to
information that is published or made available on our websites or service offerings we make available. In addition, we could incur
significant costs in investigating and defending such claims, even if we ultimately are not found liable. If any of these events
occurs, our net income could be materially and adversely affected.
We are subject to risks associated with
information disseminated through our websites and applications, including consumer data, content that is produced by our staff
and errors or omissions related to our product offerings. Such information, whether accurate or inaccurate, may result in our being
sued by our merchants, members or third parties and as a result our revenue and goodwill could be materially and adversely affected.
12
Our business depends on our ability
to maintain and scale the network infrastructure necessary to operate our websites and applications, and any significant disruption
in service on our websites or applications could result in a loss of members, customers or merchants.
Members access our deals through our websites.
Our reputation and ability to acquire, retain and serve our members and customers are dependent upon the reliable performance of
our websites and the underlying network infrastructure. As our member base and the amount of information shared on our websites
continue to grow, we will need an increasing amount of network capacity and computing power. We have spent and expect to continue
to spend substantial amounts on data centers and equipment and related network infrastructure to handle the traffic on our websites
and applications. The operation of these systems is expensive and complex and could result in operational failures. In the event
that our member base or the amount of traffic on our websites grows more quickly than anticipated, we may be required to incur
significant additional costs. Interruptions in these systems, whether due to system failures, computer viruses or physical or electronic
break-ins, could affect the security or availability of our websites and applications, and prevent our members from accessing our
services. A substantial portion of our network infrastructure is hosted by third-party providers. Any disruption in these services
or any failure of these providers to handle existing or increased traffic could significantly harm our business. Any financial
or other difficulties these providers face may adversely affect our business, and we exercise little control over these providers,
which increases our vulnerability to problems with the services they provide. If we do not maintain or expand our network infrastructure
successfully or if we experience operational failures, we could lose current and potential members and merchants, which could harm
our operating results and financial condition.
Our business depends on the development
and maintenance of the internet infrastructure.
The success of our services depends largely
on the development and maintenance of the internet infrastructure. This includes maintenance of a reliable network backbone with
the necessary speed, data capacity and security, as well as timely development of complementary products, for providing reliable
internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the
number of users and amount of traffic. The internet infrastructure may be unable to support such demands. In addition, increasing
numbers of users, increasing bandwidth requirements or problems caused by viruses, worms, malware and similar programs may harm
the performance of the internet. The backbone computers of the internet have been the targets of such programs. The internet has
experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages
and delays in the future. These outages and delays could reduce the level of internet usage generally as well as the level of usage
of our services, which could adversely impact our business.
We will incur increased costs as
a result of being a public company.
We face increased legal, accounting, administrative
and other costs and expenses as a public company that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, including
the requirements of Section 404, as well as new rules and regulations subsequently implemented by the Securities and Exchange Commission
(the "SEC"), the Public Company Accounting Oversight Board (the "PCAOB"), impose additional reporting and
other obligations on public companies. We expect that compliance with these public company requirements will increase our costs
and make some activities more time-consuming. A number of those requirements will require us to carry out activities we have not
done previously. For example, we will adopt new internal controls and disclosure controls and procedures. In addition, we will
incur additional expenses associated with our SEC reporting requirements. Furthermore, if we identify any issues in complying with
those requirements (for example, if we or our accountants identify a material weakness or significant deficiency in our internal
control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could
adversely affect us, our reputation or investor perceptions of us. We also expect that it will be difficult and expensive to obtain
director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive officers. Advocacy efforts by stockholders and third parties may also
prompt even more changes in corporate governance and reporting requirements. We expect that the additional reporting and other
obligations imposed on us by these rules and regulations will increase our legal and financial compliance costs and the costs of
our related legal, accounting and administrative activities significantly. These increased costs will require us to divert a significant
amount of money that we could otherwise use to expand our business and achieve our strategic objectives.
13
Our ability to raise capital in the
future may be limited, and our failure to raise capital when needed could prevent us from growing.
We may in the future be required to raise
capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or
at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests
of our common stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability.
If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
Risks Related to Ownership of Our Common
Stock
Our common stock has a limited trading
market, which could affect your ability to sell shares of our common stock and the price you may receive for our common stock.
Our common stock is currently traded on
the OTCQB under the symbol "LUXR." There is only limited trading activity in our securities. We have a relatively small
public float compared to the number of our shares outstanding. Accordingly, we cannot predict the extent to which investors'
interest in our common stock will provide an active and liquid trading market. Due to our limited public float, we may be vulnerable
to investors taking a "short position" in our common stock, which would likely have a depressing effect on the price
of our common stock and add increased volatility to our trading market.  The volatility of the market for our common
stock could have a materially adverse effect on our business, results of operations and financial condition. There cannot be any
guarantee that an active trading market for our securities will develop or, if such a market does develop, will be sustained. Accordingly,
investors must be able to bear the financial risk of losing their entire investment in our common stock.
Our common stock is quoted only on
the OTCQB, which may have an unfavorable impact on our stock price and liquidity.
Our common stock is quoted on the OTCQB.
The OTCQB is a significantly more limited market than the New York Stock Exchange or The NASDAQ Stock Market. The quotation of
our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of
our common stock, could depress the trading price of our common stock, and could have a long-term adverse impact on our ability
to raise capital in the future.
If we are unable to adequately fund
our operations, we may be forced to voluntarily file for deregistration of our common stock with the SEC.
Compliance with the periodic reporting
requirements required by the SEC consumes a considerable amount of both internal, as well external, resources and represents a
significant cost for us.  We estimate that we will incur approximately $250,000 in costs in connection with compliance
with the periodic reporting requirements required by the SEC on an annual basis.  If we are unable to continue to devote
adequate funding and the resources needed to maintain such compliance, while continuing our operations, we may be forced to deregister
with the SEC.  If we file for deregistration, our common stock will no longer be listed on the OTCQB, and it may suffer
a decrease in, or absence of, liquidity as after the deregistration process is complete, our common stock will only be tradable
on the "Pink Sheets."
Because we became public by means
of a "reverse merger," we may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we will
become public through a "reverse merger." Securities analysts of major brokerage firms may not provide coverage of
us since there is little incentive to brokerage firms to recommend the purchase of our common stock. We cannot assure you that
brokerage firms will want to conduct any secondary offerings on behalf of our company in the future.
14
The sale of securities by us in any
equity or debt financing could result in dilution to our existing stockholders and have a material adverse effect on our earnings.
Any sale of common stock by us in a future
private placement offering could result in dilution to the existing stockholders as a direct result of our issuance of additional
shares of our capital stock.  In addition, our business strategy may include expansion through internal growth, by acquiring
members email lists, or by establishing strategic relationships with targeted customers and vendor.  In order to do so,
or to finance the cost of our other activities, we may issue additional equity securities that could dilute our stockholders'
stock ownership.  We may also assume additional debt and incur impairment losses related to goodwill and other tangible
assets if we acquire another company and this could negatively impact our earnings and results of operations.
There may be future sales or other
dilution of our common stock, including from the conversion of our 8% preferred stock, and the exercise of our warrants, which
may materially adversely affect the market price of our common stock and negatively impact a holder's investments.
We are not restricted from issuing additional
common stock, including any securities that are convertible into or exercisable for, or that represent the right to receive, common
stock or any substantially similar securities. We may issue additional preferred stock, except, if it ranks senior to, or on parity
with, our 8% preferred stock, we must obtain the consent of holders of our 8% preferred stock. In addition, quarterly dividends
payable on our 8% preferred stock may be paid "in-kind," at our option, in additional shares of 8% preferred stock.
The market price of our common stock could decline as a result of sales of a large number of issuances of common stock, 8% preferred
stock, warrants or similar securities in the market in the future or the perception that such issuances could occur. For example,
if we issue preferred stock in the future that (i) has a preference over our common stock with respect to the payment of dividends
or upon our liquidation, dissolution or winding-up, (ii) has voting rights that dilute the voting power of our common stock
or (iii) is convertible into our common stock, the rights of holders of our common stock or the market price of our common
stock could be adversely affected.
Each share of our 8% preferred stock is
convertible into, and each warrant is exercisable for, at the option of the holder, shares of our common stock. The conversion
or exercise of some or all of our 8% preferred stock or warrants, as applicable, will dilute the ownership interest of existing
holders of our common stock. Any sales in the public market of our common stock issuable upon such conversion or exercise could
adversely affect prevailing market prices of the outstanding shares of our common stock or 8% preferred stock or warrants. In addition,
the existence of our 8% preferred stock and warrants may encourage short selling or arbitrage trading activity by market participants
because the conversion of our 8% preferred stock or exercise of our warrants could depress the price of our common stock.
Furthermore, grants of restricted common
stock and options have been made to our officers and key employees under our management incentive and other employee incentive
plans.
Together with these grants, there
are currently outstanding 9,234,321 shares of our 8% preferred stock that are currently convertible into 9,243,321 shares of
our common stock and warrants to purchase 25,089,915 shares of our common stock and 3,608,246 stock grants relating to
various agreements. Upon the vesting of restricted shares, the conversion of our 8% preferred stock or the exercise of warrants and
options, these securities would have a dilutive effect on our outstanding shares of common stock.
Future sales of our common stock
in the public market could lower the price of our common stock and impair our ability to raise funds in future securities offerings.
Future sales of a substantial number of
shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing
market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering
of its securities.
The market price of our common stock
may be volatile and may be affected by market conditions beyond our control.
The market price of our common stock is
subject to significant fluctuations in response to, among other factors:
·
variations in our operating results and market conditions specific
to companies offering group-buying deals;
·
changes in financial estimates or recommendations by securities analysts;
·
the emergence of new competitors;
·
operating and market price performance of other companies that investors
deem comparable;
·
changes in our board or management;
15
·
sales or purchases of our common stock by insiders;
·
commencement of, or involvement in, litigation;
·
changes in governmental regulations; and
·
general economic conditions and slow or negative growth of related
markets.
In addition, if the market for stocks in
our industry, or the stock market in general, experiences a loss of investor confidence, the market price of our common stock could
decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs it
could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to
defend and a distraction to the board of directors and management.
We do not intend to pay dividends
on our common stock for the foreseeable future, and you must rely on increases in the market prices of our common stock for returns
on your investment.
For the foreseeable future, we intend to
retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends
on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to
earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination
to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations,
financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors
deems relevant.
We are subject to penny stock regulations
and restrictions and you may have difficulty selling shares of our common stock.
The SEC has adopted regulations which generally
define so-called "penny stocks" as an equity security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Our shares of common stock are "penny stock" and
we are subject to Rule 15g-9 under the Exchange Act (the "Penny Stock Rule"). This rule imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than established customers and "accredited investors"
(generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with
their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability
of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary
market.
For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule relating to the
penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our shares
of common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock was exempt from the
Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict
any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public
interest.
16
Until the conversion of our 8% preferred
stock or the exercise of our warrants, holders of these securities do not have identical rights as holders of our common stock,
but they will be subject to all changes made with respect to our common stock.
Before converting shares of our 8% preferred
stock, holders of our 8% preferred stock are not entitled to any rights with respect to our common stock (other than voting rights
and rights to receive dividends or other distributions on our common stock), but they are subject to all changes affecting our
common stock. In addition, holders of warrants are not entitled to any rights with respect to our common stock (including, without
limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but they also will
be subject to all changes affecting our common stock. Even though holders of our 8% preferred stock vote on an as-converted
basis with holders of our common stock, they will only be entitled to exercise all of the rights of a holder of our common stock
upon conversion of their 8% preferred stock and only as to matters for which the record date occurs on or after the applicable
conversion date and to the extent permitted by law, although they will be subject to any changes in the powers, preferences or
special rights of our common stock that may occur as a result of any stockholder action. Similarly, holders of our warrants will
have rights with respect to our common stock only if they receive our common stock upon exercise of the warrants and only as of
the date when such holder becomes a record owner of the shares of our common stock upon such exercise. For example, with respect
to warrants, if an amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the
record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date a warrant holder
is deemed to be the owner of the shares of our common stock due upon exercise of the warrants, the exercising warrant holder will
not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes in the powers, preferences
or special rights of our common stock.
In the event of our voluntary or
involuntary liquidation, winding-up or dissolution, our 8% preferred stock will rank senior to our common stock but junior to all
of our liabilities.
In the event of our voluntary or involuntary
liquidation, winding-up or dissolution, the holders of our 8% preferred stock may exercise their rights to convert all or a portion
of stock into common stock. Each holder of 8% preferred stock that does not exercise its rights to convert shall be entitled to
receive out of our assets, for each share of 8% preferred stock, cash in an amount equal to (i) the original issue price plus (ii)
all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the common stock, but after
payment of all outstanding indebtedness and all amounts due on liquidation, dissolution or winding-up in respect of all preferred
stock of the Corporation which by its terms is senior to the 8% preferred stock, if any.
Our 8% preferred stock is perpetual
in nature.
Shares of our 8% preferred stock represent
a perpetual interest in the Company and, unlike indebtedness, will not give rise to a claim for payment of a principal amount at
a particular date. Therefore, holders should be aware that they may be required to bear the financial risks of an investment in
our 8% preferred stock for an indefinite period of time, unless such holders convert, at their option, their shares of 8% preferred
stock into common stock.
A fundamental transaction with respect
to us may trigger certain rights for the purpose of our 8% preferred stock.
The certificate of designations of our
8% preferred stock contains a covenant that if a "fundamental transaction", as defined in the certificate of designations
of our 8% preferred stock, occurs, then such event will be treated as liquidation for purposes of a liquidation preference in the
certificate of designations. In which case, the holders of our 8% preferred stock may exercise their rights to convert all or a
portion of stock into common stock. Each holder of preferred stock that does not exercise its rights to convert shall be entitled
to receive out of our assets, for each share of preferred stock, cash in an amount equal to (i) the original issue price plus (ii)
all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the common stock, but after
payment of all outstanding indebtedness and all amounts due on liquidation, dissolution or winding-up in respect of all preferred
stock of the Corporation which by its terms is senior to the 8% preferred stock, if any. Any change of control transaction with
respect to the Company may also negatively affect the liquidity, value or volatility of our common stock and thereby negatively
impact the value of our 8% preferred stock (and our warrants). Additionally, the provisions of our 8% preferred stock related to
fundamental transactions could have the effect of discouraging third parties from pursuing certain transactions with us, which
may otherwise be in the best interest of our stockholders.
The adjustment to the exercise price
for warrants exercised in connection with an anti-dilutive adjustment event may not adequately compensate you for any lost value
of your warrants as a result of such transaction.
If a specified corporate event or transaction
constituting a dilutive event occurs, under certain circumstances we will decrease the exercise price for warrants exercised in
connection with such dilutive adjustment event. The decrease in the exercise price will be determined based on the date on which
the dilutive event occurs or becomes effective and the price paid per share of our common stock in such dilutive event. The adjustment
to the exercise price for warrants exercised in connection with a dilutive event may not adequately compensate you for any lost
value of your warrants as a result of such dilutive event.
17
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward looking
statements that involve risks and uncertainties, principally in the sections entitled "Description of Business," "Risk
Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
All statements other than statements of historical fact contained in this prospectus, including statements regarding future events,
our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking
statements. We have attempted to identify forward-looking statements by terminology including "anticipates," "believes,"
"can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "predicts," "should," or "will"
or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe
we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks outlined under "Risk Factors" or elsewhere
in this prospectus, which may cause our or our industry's actual results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment.
New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of
all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ
materially from those contained in any forward-looking statements. All forward-looking statements included in this document are
based on information available to us on the date hereof, and we assumes no obligation to update any such forward-looking statements.
You should not place undue reliance on
any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities,
you should be aware that the occurrence of the events described in the section entitled "Risk Factors" and elsewhere
in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required
by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus
to conform our statements to actual results or changed expectations.
DIVIDEND POLICY
We plan to retain any earnings for the
foreseeable future for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors
and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors
deems relevant. In addition, our credit facility restricts our ability to pay dividends.
Each holder of our 8% preferred stock,
in preference and priority to the holders of all other classes of stock, shall be entitled to receive, with respect to each share
of 8% preferred stock, dividends, commencing from the date of issuance of such share of preferred stock, at the rate of eight percent
(8%) per annum. The 8% preferred stock dividends are cumulative, whether or not earned or declared, and are to be paid by us quarterly
in arrears on the first business day of January, April, July and October in each year. The 8% preferred stock dividends are to
be paid to each holder of 8% preferred stock in cash out of legally available funds. The 8% preferred stock dividends may also
be paid in shares of common stock under certain circumstances.
USE OF PROCEEDS
We will not receive any of the proceeds
from the sale of the shares and warrants described in this prospectus. However, we may receive up to $10,301,634 upon the exercise
of the warrants if the holders exercise them for cash. If some or all of the warrants are exercised, the money we receive will
be used for general corporate purposes, including working capital requirements.
18
DILUTION
We are not selling any of the shares of our common stock or
8% preferred stock in this offering. All of the shares sold in this offering will be held by the selling stockholders at the time
of the sale, so that no dilution will result from the sale of the shares.
PENNY STOCK CONSIDERATIONS
Our common stock will be a penny stock,
therefore, trading in our securities is subject to penny stock considerations. Broker-dealer practices in connection with transactions
in "penny stocks" are regulated by certain penny stock rules adopted by the SEC.
Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ
system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer's account. The broker-dealer must also make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These requirements
may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject
to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers
from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These
requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common
stock.
SELLING STOCKHOLDERS
The common shares being offered for resale
by the selling stockholders consist of 39,144,590 shares of our common stock that are issued and outstanding, including up to (i)
8,904,287 shares of common stock issuable upon conversion of the selling stockholders that own 8% preferred stock, (ii) 441,275
shares of common stock, par value $0.0001 per share, issuable to the selling stockholders as payment for any dividends on the 8%
preferred stock, (iii) 5,700,012 shares of our common stock held by selling stockholders, (iv) 2,700,006 shares of our common stock
issuable upon exercise of Series A warrants held by the selling stockholders at an exercise price of $0.30 per share, (v) 2,700,006
shares of our common stock issuable upon exercise of Series B warrants held by the selling stockholders at an exercise price of
$0.30 per share, (vi) 8,904,287 shares of our common stock issuable upon exercise of Series C warrants held by the selling stockholders
at an exercise price of $0.50 per share, (vii) 4,452,144 shares of our common stock issuable upon exercise of the Series D warrants
held buy the selling stockholders at an exercise price of $0.35 per share, (viii) 4,452,144 shares of our common stock issuable
upon exercise of the Series E warrants held buy the selling stockholders at an exercise price of $0.50 per share, and (ix) 890,429
shares of our common stock issuable upon exercise of placement agent warrants held by selling stockholders at an exercise price
of $0.50 per share. These holders include investors in our private placements as of (A) November 8, 2011 and December 15, 2011
for the sale of an aggregate of (i) 5,400,012 shares of common stock, (ii) Series A warrants to purchase 2,700,006 shares of common
stock and (iii) Series B warrants to purchase 2,700,006 shares of common stock, and (B) May 31, 2012 for the sale of units consisting
of an aggregate of (i) 8,904,287 shares of 8% preferred stock, (ii) Series C warrants
to
purchase 8,904,287 shares of common stock
, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock, and
(iv) Series E warrants to purchase up to 4,452,144 shares of common stock.
19
The following table sets forth certain
information regarding the selling stockholders and the shares offered by them in this prospectus. Each selling stockholder's
percentage of ownership is based upon (i) 69,002,253 shares of common stock outstanding and (ii) 8,904,287 share of 8% preferred
stock outstanding, as of June 11, 2012.
LuxeYard, Inc.
Selling Shareholders
Name of Selling Stockholder
Shares
Beneficially
Owned prior to
Offering
Percentage
Beneficially
Owned prior to
Offering
Shares to Offer (1)
Shares
Beneficially
Owned after
Offering
Percentage
Beneficially
Owned After
Offering
Amir Mireskandri (2)
19,316,719
28.0%
1,706,134
(3)
17,610,585
25.5%
Black Mountain Equities, Inc.
435,652
*
435,652
(4)
-
*
Braden Richter (5)
2,685,652
3.9%
435,652
(6)
2,250,000
3.3%
Capital Ventures International
2,622,620
3.8%
2,622,620
(7)
-
*
Core Energy Enterprises, Inc.
1,000,004
1.4%
1,000,000
(8)
-
*
Cranshire Capital Master Fund, Ltd.
1,306,955
1.9%
1,306,955
(9)
-
*
David S. Nagelberg
874,990
1.3%
699,988
(10)
175,002
*
Equity Highrise Inc.
916,671
1.3%
500,004
(11)
416,667
*
Erick Richardson
435,652
*
435,652
(12)
-
*
FireRock Capital, Inc.
2,439,988
3.5%
435,652
(13)
2,004,336
2.9%
HCP Opportunity Fund, L.P.
731,894
1.1%
731,894
(14)
-
*
Huttner 1999 Partnership Ltd.
4,549,125
6.6%
3,844,126
(15)
704,999
1.0%
Jeff A. Sater
500,004
*
500,004
(16)
-
*
Jeff Lamont
250,003
*
250,004
(17)
-
*
Jinsun, LLC
3,600,066
5.2%
1,101,733
(18)
2,498,333
3.6%
Jonathan Camarillo Trust
1,313,548
1.9%
980,214
(19)
333,333
*
Joseph R. Lee
500,004
*
500,004
(20)
-
*
Kay Holdings, Inc.
99,995
*
99,996
(21)
-
*
Kevin Lisman
250,003
*
250,004
(22)
-
*
Khaled Alattar (23)
5,811,578
8.4%
965,168
(24)
4,846,410
7.0%
Kingsbrook Opportunities Master  Fund LP
871,305
1.3%
871,305
(25)
-
*
Lance Baral
205,870
*
199,988
(26)
5,882
*
Lee Bear I, LLC
783,336
1.1%
250,004
(27)
533,332
*
Mark Trotter
725,014
1.1%
725,012
(28)
-
*
Market Byte LLC Defined Benefit & Trust
250,003
*
250,004
(29)
-
*
Maxim Group LLC
2,368,457
3.4%
1,012,343
(30)
1,356,114
2.0%
Next View Capital LP
3,476,496
5.0%
3,476,496
(31)
-
*
Octagon Capital Partners LP
871,302
1.3%
871,302
(32)
-
*
Pergament Multi-Strategy Opportunities, LP
8,713,021
12.6%
8,713,021
(33)
-
*
Robert Gleckman
500,002
*
500,000
(34)
-
*
Robert Klinek $ Susan Pack JTWROS
1,000,004
1.4%
1,000,000
(35)
-
*
Schottenstein Capital Partners, L.P.
261,390
*
261,390
(36)
-
*
Sean Crowley
500,002
*
500,000
(37)
-
*
Silverrock II, Ltd.
1,056,114
1.5%
522,781
(38)
533,333
*
Sun Bear, LLC
783,336
1.1%
250,004
(39)
533,332
*
Sunrise Securities, Inc.
2,683,300
3.9%
(v)
178,086
(40)
2,504,314
3.6%
Thomas Hudson
250,003
*
250,004
(41)
-
*
Warberg Opportunistic Trading Fund L.P.
261,390
*
261,390
(42)
-
*
William W. Bartlett, Jr.
250,003
*
250,004
(43)
-
*
Total
75,451,471
69,002,253
39,144,590
36,305,972
* Less than 1%
(1)
Includes the shares of common stock and the shares underlying the warrants issued to investors
in Private Placements that closed on November 8, 2011, December 15, 2011, and May 31, 2012, as well as common stock and the shares
underlying the warrants issued to the placement agent in such financings.
(2)
Mr. Mireskandri is our Chairman of the Board. The shares held by Mr. Mireskandri are restricted
stock subject to a Lock-Out/Leak Out Agreement dated November 8, 2011. The shares are restricted for nine months from November
8, 2011. Mr. Mireskandri's shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement
the shares are restricted until December 31, 2012.
(3)
Includes (i) 417,416 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 208,708 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 208,708
shares of common stock issuable upon the exercise of the Series B Warrant, (iv) 285,714 shares of common stock issuable upon the
conversion of the 8% preferred stock, (v) 285,714 shares of common stock issuable upon the exercise of the Series C Warrant, (vi)
142,857 shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 142,857 shares of common stock issuable
upon the exercise of the Series E Warrant, and (viii) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred
stock.
(4)
Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(5)
Mr. Richter is our President, Chief Executive Officer and director. The shares held by Mr. Richter
are restricted stock subject to a Lock-Up Agreement dated November 8, 2011. The shares are restricted for 18 months from November
8, 2011. Mr. Richter's shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the
shares are restricted until December 31, 2012.
(6)
Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(7)
Includes (i) 860,000 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 860,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 430,000 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 430,000 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 42,620 shares of stock issuable upon payment of dividends on the 8% preferred stock.
20
(8)
Includes (i) 500,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 250,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 250,000
shares of common stock issuable upon the exercise of the Series B Warrant.
(9)
Includes (i) 428,572 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 428,572 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 214,286 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 214,286 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 21,239 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(10)
Includes (i) 349,994 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 174,997 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 174,997
shares of common stock issuable upon the exercise of the Series B Warrant.
(11)
Includes (i) 250,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.
(12)
Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(13)
Includes (i) 142,857 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 142,857 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 71,429 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 71,429 shares of common stock issuable upon the exercise of the Series E Warrant,
(v) 7,080 shares of stock issuable upon payment of dividends on the 8% preferred stock. Firerock Capital's shares are also
subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the shares are restricted until December 31, 2012.
(14)
Includes (i) 240,000 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 240,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 120,000 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 120,000 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 11,894 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(15)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant, (iv) 1,178,572 shares of common stock issuable upon the conversion
of the 8% preferred stock, (v) 1,178,572 shares of common stock issuable upon the exercise of the Series C Warrant, (vi) 589,285
shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 589,285 shares of common stock issuable upon the
exercise of the Series E Warrant, and (v) 58,407 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(16)
Includes (i) 250,001 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.
(17)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.
(18)
Includes (i) 387,498 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 193,749 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 193,749
shares of common stock issuable upon the exercise of the Series B Warrant, (iv) 107,143 shares of common stock issuable upon the
conversion of the 8% preferred stock, (v) 107,143 shares of common stock issuable upon the exercise of the Series C Warrant, (vi)
53,571 shares of common stock issuable upon the exercise of the Series D Warrant, (vii) 53,571 shares of common stock issuable
upon the exercise of the Series E Warrant, and (v) 5,310 shares of stock issuable upon payment of dividends on the 8% preferred
stock..
21
(19)
Includes (i) 321,429 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 321,429 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 160,714 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 160,714 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 15,929 shares of stock issuable upon payment of dividends on the 8% preferred stock..
(20)
Includes (i) 250,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,001 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,001
shares of common stock issuable upon the exercise of the Series B Warrant.
(21)
Includes (i) 49,998 shares of common stock purchased in the November 8, 2011 and December 15, 20011
private placements, (ii) 24,999 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 24,999 shares
of common stock issuable upon the exercise of the Series B Warrant.
(22)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.
(23)
The shares held by Mr. Alattar are restricted stock subject to a Lock-Up Agreement dated November
8, 2011. The shares are restricted for 18 months from November 8, 2011.
(24)
Includes (i) 482,584 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 241,292 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 241,292
shares of common stock issuable upon the exercise of the Series B Warrant.
(25)
Includes (i) 285,715 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 285,715 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 142,858 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 142,858 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(26)
Includes (i) 99,994 shares of common stock purchased in the November 8, 2011 and December 15, 20011
private placements, (ii) 49,997 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 49,997 shares
of common stock issuable upon the exercise of the Series B Warrant.
(27)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.
(28)
Includes (i) 362,506 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 181,253 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 181,253
shares of common stock issuable upon the exercise of the Series B Warrant.
(29)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.
(30)
Includes (i) 300,000 shares of common stock in fees, and (ii) 712,343 shares of common stock issuable
upon the exercise of the Maxim placement agent warrant. Maxim is a broker dealer.
(31)
Includes (i) 1,140,000 shares of common stock issuable upon the conversion of the 8% preferred
stock, (ii) 1,140,000 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 570,000 shares of common
stock issuable upon the exercise of the Series D Warrant, (iv) 570,000 shares of common stock issuable upon the exercise of the
Series E Warrant, and (v) 56,496 shares of stock issuable upon payment of dividends on the 8% preferred stock..
(32)
Includes (i) 285,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 285,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 142,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 142,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 14,159 shares of stock issuable upon payment of dividends on the 8% preferred stock..
22
(33)
Includes (i) 2,857,143 shares of common stock issuable upon the conversion of the 8% preferred
stock, (ii) 2,857,143 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 1,428,571 shares of common
stock issuable upon the exercise of the Series D Warrant, (iv) 1,428,571 shares of common stock issuable upon the exercise of the
Series E Warrant, and (v) 141,593 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(34)
Includes (i) 250,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,000
shares of common stock issuable upon the exercise of the Series B Warrant.
(35)
Includes (i) 500,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 250,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 250,000
shares of common stock issuable upon the exercise of the Series B Warrant.
(36)
Includes (i) 85,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 85,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 42,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 42,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 4,248 shares of stock issuable upon payment of dividends on the 8% preferred stock..
(37)
Includes (i) 250,000 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 125,000 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 125,000
shares of common stock issuable upon the exercise of the Series B Warrant.
(38)
Includes (i) 171,429 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 171,429 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 85,714 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 85,714 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 8,496 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(39)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.
(40)
Includes 178,086 shares of common stock issuable upon the exercise of the Sunrise placement agent
warrant for placement agent fees in connection with 8% preferred stock offering that closed on May 31, 2012. Sunrise Securities'
shares are also subject to a Lock-Up Letter Agreement, dated May 31, 2012. Under this agreement the shares are restricted until
December 31, 2012. Sunrise is a broker-dealer.
(41)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, and (iii) 62,501
shares of common stock issuable upon the exercise of the Series B Warrant.
(42)
Includes (i) 85,714 shares of common stock issuable upon the conversion of the 8% preferred stock,
(ii) 85,714 shares of common stock issuable upon the exercise of the Series C Warrant, (iii) 42,857 shares of common stock issuable
upon the exercise of the Series D Warrant, (iv) 42,857 shares of common stock issuable upon the exercise of the Series E Warrant,
and (v) 4,248 shares of stock issuable upon payment of dividends on the 8% preferred stock.
(43)
Includes (i) 125,002 shares of common stock purchased in the November 8, 2011 and December 15,
20011 private placements, (ii) 62,501 shares of common stock issuable upon the exercise of the Series A Warrant, (iii) 62,501 shares
of common stock issuable upon the exercise of the Series B Warrant.
Except as disclosed in the table above, to our knowledge, none
of the selling stockholders or beneficial owners:
●
has had a material relationship with us other than as a stockholder at any time within the past three years;
●
has ever been one of our officers or directors or an officer or director of our affiliates; or
23
●
are broker-dealers or affiliated with broker-dealers.
With respect to those selling stockholders
noted above who are or were affiliated with registered broker-dealers, each has represented to us that the shares being registered
for resale were purchased in the ordinary course of business and, at the time of purchase, such selling stockholder had no agreements
or understandings, directly or indirectly, with any person to distribute the shares.
24
DESCRIPTION OF BUSINESS
Business Overview
We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a "flash sale"
or "daily deal" at deep discounts to retail prices.  In January 2012, our launched our website www.Luxeyard.com
and began operations. We launched with the product line of home goods and furniture. On March 27, 2012, we launched LuxeStyle apparel
line. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. We recently expanded into
apparel and accessories.   As our member base and merchant selection increase, we expect to expand our offerings to include
other consumer goods such as travel, gourmet food and beverages, consumer services events and gift cards.
Each week we conduct several "flash
sale" events on our website in which we feature merchandise at steep discounts to suggested retail prices.  At
the beginning of each event, members receive an email describing the featured products and directing them to our website to participate.  We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.
In addition to flash sales, we also feature
a "Daily Deal" whereby we offer a single product on our website for a 24 hour period.  Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.  Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.  In
some cases, when our Group Buy feature is active, as more members participate in the deal, the purchase price decreases.
Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant's location to the member.
With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.
In April we began a Business to Business program through which
we source containers of goods and sell them to retailers. The retailers are offered products prior to the arrival of the container
shipments and any unsold items from the container shipment are then offered on our website.
We operate in an extremely competitive
"flash sales" space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company's ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.
Our Corporate History and Background
We incorporated under the laws of the Delaware
on December 31, 2007 under name "Top Gear, Inc." From inception until the closing of the securities exchange ("Securities
Exchange") with LY Retail, LLC, a Texas limited liability company ("LY Retail-Texas") on November 8, 2011, we
sought to develop and commercialize a kosher certification service with a goal of becoming a leading kosher food certification
organization.  During that time, we had no revenue and our operations were limited to capital formation, organization
and development of our business plan.  As a result of the Securities Exchange, we ceased our prior operations and we
now operate as an e-commerce marketplace that connects merchants to consumers by offering luxury goods and services at a discount.
25
LY Retail-Texas was organized as a limited
liability company under the laws of Texas on April 20, 2011. Immediately prior to the closing of the Securities Exchange, Amir
Mireskandari and Khaled Alattar were the members of LY Retail-Texas.
On November 8, 2011 and concurrently with
the Securities Exchange transaction, we formed a wholly owned subsidiary under name LY Retail, LLC ("LY Retail-CA")
in the State of California. All of the operating activity of the Company was transferred to LY Retail-CA and LY Retail-Texas ceased
all activity.
Acquisition of LY Retail-Texas
On November 8, 2011, we completed the Securities
Exchange whereby we acquired all of the issued and outstanding membership interests of LY Retail-Texas in exchange for 30,349,998
shares of our common stock which shares constituted approximately 52.43% of our issued and outstanding shares of common stock as
of and immediately after the consummation of the Securities Exchange. As a result of the Securities Exchange, LY Retail-Texas became
our
wholly owned subsidiary and Amir Mireskandari and Khaled Alattar became our principal stockholders. The Securities
Exchange was treated as a recapitalization effected through a securities exchange, with LY Retail-Texas as the accounting acquirer
and the Company the accounting acquiree.
Reorganization and Spin-Out
On November 8, 2011 and immediately prior
to the Securities Exchange, we (i) entered into a contribution and assumption agreement (the "Contribution and Assumption
Agreement") with TGRE SubCo, Inc., a Delaware corporation formed as our wholly owned subsidiary for the purposes of spinning
out the operations of Top Gear, Inc. ("SpinCo") pursuant to which we contributed all of our assets to SpinCo and SpinCo
assumed all of our debts and other liabilities (the "Reorganization"); and (ii) immediately following the Reorganization,
we entered into an agreement of sale (the "Agreement of Sale") with Omri Amos Shalom ("Shalom") and Akiva
Bergman ("Bergman"), our former principal shareholders, pursuant to which we sold to Shalom and Bergman all of our
interest in SpinCo in exchange for a total of 119,000,000 shares of our common stock held by Shalom and Bergman (the "Spin-Out").  The
shares of common stock acquired from Shalom and Bergman in the Spin-Out were cancelled following the Securities Exchange.
Financing Transactions
November 2011 Equity Offering
On November 8, 2011 and immediately following
the Securities Exchange, we completed a private offering of units consisting of an aggregate of (i) 3,150,012 shares of our common
stock, (ii) Series A warrants
to purchase 1,574,998
shares
of common stock which have a five-year term and an initial per share exercise price of $
0.30, subject to adjustment as described
below (the "Series A Warrants"), and (iii) Series B warrants
to purchase 1,574,998
shares of common stock which have a five-year term and an initial per share exercise price
of $
0.60, subject to adjustment as described below (the "Series B Warrants").  The price per unit
was $0.20 for an aggregate purchase price of approximately $630,000.  As described below, approximately $217,500 of the
Purchase Price was paid via the delivery to the Company of promissory notes previously issued by LY Retail-Texas to certain of
its bridge investors (which such investors included the LY Retail-Texas Members).
·
Subscription Agreement.
The units
were offered and sold to the subscribers in the offering pursuant to a subscription agreement dated as of November 8, 2011.
Exchange of Bridge Notes
.
Certain
of the subscribers (each, a "Bridge Investor" and collectively the "Bridge Investors") delivered promissory
notes issued by LY Retail-Texas prior to the Securities Exchange (each, a "Bridge Note" and collectively the "Bridge
Notes") as payment of such Bridge Investor's purchase price for the units.  To the extent the principal amount
of a Bridge Investor's Bridge Note was greater than such Bridge Investor's purchase price for the units, the Company,
on behalf of LY Retail-Texas, paid the remaining principal amount of such Bridge Note from the proceeds of the offering.  Accordingly,
Bridge Notes in the aggregate principal amount of $217,500 were exchanged for units in the offering and the Company paid $62,500
of the remaining principal amount of the Bridge Notes to the Bridge Investors out of the proceeds from the offering.  As
a result, the Bridge Notes are deemed to be cancelled and are of no further force and effect.
26
Antidilution Protection
.
Subject
to certain exceptions, if at any time during the twelve (12) months following the closing of the offering the Company issues or
sells shares of its common stock at a price per share less than $0.30 (as adjusted for any stock dividend, stock split, stock combination
or other similar transaction), the Company is required to promptly thereafter issue to each subscriber following such new issuance
that number of shares of its common stock equal to the greater of (I) zero and (II) the difference of (i) the quotient of (x) such
subscriber's purchase price divided by (y) the price per share of the new issuance, less (ii) the number of shares of common
stock previously issued to such Subscriber pursuant to the Subscription Agreement (as adjusted for any stock dividend, stock split,
stock combination or other similar transaction).
·
Warrants.
The Series A
                                                                                                               Warrants have a five-year term and are exercisable for an aggregate of 1,574,998 shares of our common stock at an initial per
                                                                                                               share exercise price of $0.30, subject to adjustment as set forth below.  The Series B Warrants have a five-year
                                                                                                               term and are exercisable for an aggregate of 1,574,998 shares of our common stock at an initial per share exercise price of
                                                                                                               $0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to certain adjustment, such as stock splits, combinations, dividends, distributions, reclassifications,
                                                                                                               mergers or other corporate changes.  In addition, subject to certain exceptions, if at any time after the closing
                                                                                                               date, the Company issues or sells any shares of its common stock at a price per share less than the exercise price of the
                                                                                                               applicable warrant, then immediately after such new issuance, the exercise price of the applicable warrant then in effect
                                                                                                               shall be reduced to an amount equal to the price per share of such new issuance.  If the warrants are not
                                                                                                               registered with the Securities Act, the warrants can be exercised on a cashless basis.
·
Registration Rights Agreement.
In
connection with offering, we entered into a registration rights agreement with the subscribers granting the subscribers piggy-back
registration rights with respect to the shares and the shares of common stock underlying the warrants.
·
Lock-Up Agreements.
In connection
with offering, we entered into lock-up agreements with each of Braden Richter, our newly appointed President and Chief Executive
Officer and member of our Board of Directors, Kevin Walker, our newly appointed Chief Financial Officer, Chief Operating Officer
and Secretary, Jerry Wilkerson, our newly appointed Chief Technology and Information Officer, Joshua Thompson, our newly appointed
Chief Marketing Officer, and Khaled Alattar, one of our new principal stockholders, pursuant to which each of them agreed not to
transfer any of our capital stock held directly or indirectly by them for an eighteen month period following the closing of the
offering.  In addition, we entered into a lock-up/leak-out agreement with Amir Mireskandari, our newly appointed
Chairman of our Board of Directors and one of our new principal stockholders, pursuant to which he agreed not to transfer
any of our capital stock held directly or indirectly by him for a nine month period following the closing of the offering
and for the nine months thereafter to limit any transfers to 850,000 shares of common stock in any 30 day period and 170,000 shares
of common stock on any single day.
December 2011 Equity Offering
On December 15, 2011 we completed a
private offering of units consisting of an aggregate of (i) 2,250,016 shares of our common stock, (ii) Series A Warrants
to
purchase 1,125,008 shares of our common stock which have a five-year term and an initial per share exercise price of
$
0.30, subject to adjustment, and (iii) Series B Warrants
to purchase
1,125,008
shares of our common stock which have a five-year term and an initial
per share exercise price of $
0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to adjustment.  The price per unit was $0.20 for an aggregate
purchase price of $450,000 (the "Purchase Price"). The subscribers are entitled to piggy-back registration rights
with respect to the shares and the shares of common stock underlying the Warrants and other similar rights as the offering
closed on November 8, 2011.
January 2012 Term Note
On January 25, 2012 we borrowed cash in
the amount $25,000 from one of our shareholders. The loan bears 10 % annual interest and has a maturity of April 20, 2012.  The
loan is evidenced by a promissory note. This note was converted to a debenture in the April 2012 financing.
27
April 2012 Convertible Debentures
On April 24, 2012 we entered into several
Debenture Purchase Agreements with certain investors whereby we issued and sold to the investors 10% Convertible Debentures which
are convertible into shares of our common stock at a conversion price of $0.30 per share, subject to adjustment. The aggregate
original principal amount of all Convertible Debentures is $2,915,000. Based on the aggregate original principal amount sold, the
maximum number of common shares we may be required to issue is 9,716,667.
May 2012 Equity Offering
On May 31, 2012 we completed the sale of
units pursuant to a Securities Purchase Agreement dated May 24, 2012. The units sold in the offering consisted of an aggregate
of (i) 8,904,287 shares of our 8% preferred stock, (ii) Series C warrants
to
purchase 8,904,287 shares of our common stock which have a five-year term and an initial per share exercise price of $0.50
,
subject to adjustment, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock
which
have a 90-day term and an initial per share exercise price of $
0.35, subject to adjustment, and (iv) Series E warrants to
purchase up to 4,452,144 shares of common stock
which have a five-year term
and an initial per share exercise price of $
0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross
proceeds of approximately $3,116,500, which includes $225,000 from investors that converted existing debt into the offering. Maxim
Group LLC was the placement agent for the offering.
Forward Split and Name Change
On November 30, 2011, the Board and the
shareholders representing more than 50% of our common stock approved a 1:17 forward split and change in the Company's name.
The forward split was declared effective by Financial Industry Regulatory Authority, or FINRA, as of February 8, 2012. All share
and per share amounts in this prospectus, and in the accompanying consolidated financial statements and notes thereto, reflect
the forward split for all periods presented.
On January 9, 2012, we filed a Certificate
of Amendment to our Articles of Incorporation to change the corporate name from "Top Gear, Inc." to "Luxeyard,
Inc." The amendment was effective as of January 9, 2012. In connection with the name change, we have applied for a new trading
symbol "LUXR" for the Company's common stock, which is quoted on the OTC Bulletin Board. Both the name change
and symbol change have been approved by FINRA and became effective as of February 13, 2012.
Asset Purchase Transaction
On February 22, 2012, LY Retail-CA completed
an asset purchase of eOpulence, LLC, a New York limited liability Company ("eOpulence") for an aggregate purchase price
consisting of options to purchase 300,000 shares of the common stock of the Company under the Company's 2012 Stock Option
Plan at an exercise price of $0.30 per share. The options were issued to Antonio Lopez, the majority owner of eOpulence. We also
entered into a lock-up agreement with Mr. Lopez pursuant to which he agreed not to transfer any of the options, or the common shares
received as a result of his exercise of the options, for an eighteen month period following the closing of the transaction.
Increase in Authorized Shares
Effective May 2, 2012, the Company filed
a Certificate of Amendment to its Articles of Incorporation to increase the total number of authorized shares from one hundred
million (100,000,000) shares of which all were common stock, to five hundred fifty million (550,000,000) shares of which five hundred
million (500,000,000) shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check
preferred stock, par value $0.0001. The amendment was declared effective as of May 2, 2012.
Our Service
We conduct weekly "flash sale"
events on our website in which we will feature merchandise from merchants at steep discounts to suggested retail prices.  At
the beginning of each event, members will receive an email describing the featured products and directing them to our website to
participate.  We list each event on the member homepage of our website.  Each event will remain on our site
for three to five days, depending on demand and quantity offered.
28
In addition to flash sales, we feature
a "deal of the day" whereby we will offer a single product on our website for a 24 hour period.  Similar
to flash sales, our members will receive email notifications when deals commence and will be able to view ongoing deals on the
member homepage.  Unlike other deal of the day models, members are not required to purchase a minimum number of products
before the deal becomes active.  Instead, as more members participate in the deal, the purchase price will decrease.
Members will purchase products directly
through our website via credit card and, in most cases; products will ship directly from the merchant's location to the
member.  We do not intend to function as a warehouse for any of the products we offer.
Our objective is to become a premier web-based
group buying retailer of luxury products at deep discounts to retail prices. Key elements of our strategy include the following:
Acquire and Retain Members.
We
believe a strong member base is critical to the success of group buying platforms such as ours.  We believe that
a large and loyal member base will enable us to attract merchants, expand our product offerings, negotiate better terms for our
deals and become more selective in our offerings.  We will focus on member acquisition by sourcing members through
email, our website, social network campaigns and other channels. As of June 12, 2012 we had approximately 665,600 members.
Attract Merchants.
In
addition to a strong member base, we believe that attracting recognizable merchants is key to our success.  We believe
that by offering products from recognizable merchants, we will be better able to acquire and retain members.  In addition,
we believe products from recognizable merchants are more likely to result in higher sales volumes.  We also believe that
featuring a variety of merchants will make our overall offerings more attractive to our members.  We have negotiated
with merchants and we are featuring offerings from up to 15 different merchants upon the launch of our website.  As our
member base grows, we intend to identify and feature additional merchants.
Expand Product Offerings.
Initially,
we focused our offerings on household goods and related items and launched woman's apparel in March.  As our member
base and merchant selection increase, we plan to expand our offerings to include other items and services.  We anticipate
that by offering a broad scope of products to our members, members will in turn make a greater proportion of their overall purchases
through us.
Low Cost Provider.
As
an e-commerce market place, we do not suffer from high overhead costs associated with traditional brick-and-mortar retailers.  Also,
unlike several of our competitors, we do not intent to hold inventory or incur warehousing costs.  Instead, we expect
to depend on merchants to fulfill orders directly with our members.
Distribution
We are distributing our offerings directly
to members through email, our website, and social networks.
Email
.  We will
send emails containing descriptions of each week's flash sales and each deal of the day.  Members will be able
to link directly from the email to the deals on our website to learn more and participate.
Websites.
Visitors will
be prompted to register as a member when they first visit our website and thereafter use the website as a portal to view access
and participate in our deals.
Social Networks.
We
will publish our deals through various social networks such as Facebook and Twitter.  Notifications will be tailored
to the particular format of each social networking platform.
29
Marketing
We have increased our visibility, and are
continuing to build our brand and source members through a variety of marketing initiatives, including search engine marketing,
directory listing, social media marketing, referral programs and affiliate marketing, "pay per click" programs, news
and reviews and email campaigns. We launched an extensive marketing campaign in November, 2011.
Search Engine Marketing.
We intend to create an extensive keyword-rich home page and secondary pages to improve search engine rankings. We will first initiate
an in-depth market analysis from which will reveal how the target audience and competitors currently interact online, who the key
influencers are, and the ways to connect with our target audience in a transparent non-obtrusive fashion. Then we will seek to
develop an understanding of how our business model, our target market, our competition, and our specific goals intersect and interact.  This
critical business intelligence will focus on current and future trends in our industry. During this intelligence gathering we will
also be able to specifically identify the underlying nature and extent of our business needs, competition, and desired outcome.  In
addition we can identify any concerns we may have in regards to the types of development necessary for our web site, the effect
of the marketing on our brand name, when we can expect results, and will also allow us to lay the strategic foundation for our
ongoing social media marketing, pay per click and link building campaigns.
Social Media Marketing.
An
effective social media marketing strategy involves strategic business intelligence gathering and a clear understanding of our industry,
competitors and target market. Our social media identity and the venues in which we will create an extensive presence will be readily
identified once we have clearly identified our target market and desired marketing approach. We will infiltrate various social
media venues including but not limited to: social media sites such as Facebook and Twitter, trade organizations and associated
blogs, RSS directories, discussion boards and forums, news/social aggregate sites, mashups, microblogging, online video and photo
sharing, podcasting, product sharing, service sharing, public relations and social media releases, social networks, fan clubs,
group applications, widgets, events and Wikipedia, where we will develop an extensive network of link building, bookmarking and
tagging to our online destination. In the future we will also develop and utilize our internal forum so that our members can review
our deals on our website.
Link Building and Affiliate
Marketing.
We believe that one of the hardest parts of web marketing is building link recognition. Obtaining massive
numbers of relevant "referral links" has become one of the central focuses of web marketing strategy. The ideal mixture
of link building options will be selected to craft a customized link plan made for long run return on investment and high ranking
results. We plan to use the following methods to obtain more referral links, including directory submission, article submission,
social bookmarking, blog and forum review, affiliate / strategic partner links and forum activity.
Pay Per Click Marketing Solution
.  Pay
per click and run of network keyword marketing solutions drive highly interested traffic that provides us with the member base
we require. By purchasing the proper keywords, we will be able to attract the value-added traffic to reach the quality traffic
that is actively looking for what we sell at the exact time they are looking to buy. We will utilize both top-tier and long-tail
keywords to identify potential traffic sources. We will then create closely related keyword groups and convert keyword groups into
advertisement groups. We create landing pages that are relevant to our keywords and advertisement text.
Directory Listing
. We
will submit the website to all available (both paid and unpaid) directories in order to increase our presence online, and the number
of back-links pointing to our site.
News/Reviews/RSS
. We plan
to submit internally created and user driven and paid-for news articles, review and RSS feeds to associated websites, blogs and
news agencies to increase our audience and increase the number of referral links driving traffic to and increase the rankings of
our pages.
Email Campaigns
. We will
develop and increase our member base through internal member development and member email lists acquisition. These email campaign
will also alert existing members of currents events or sales to increase sales from our existing customers.
Press Release.
We will
submit official press releases to appropriate agencies of all developments and milestones reach by us. This will increase our presence
online and increase our ranking in search engine positions.
30
Operations
Our business operations are divided into
the following core functions:
Identification of Luxury Deals
Sourcing
.  We feature or plan to expand to
the following types of products for our website:
·
Volume Discount Items – From time
to time, merchants may have overstocked inventory or production lines that have excess capacity and therefore increase production
that can be consumed regularly. These products are mostly cataloged, photography ready and have a market based pricing. We seek
discounts of 40-60% of regular wholesale prices with a minimum number of units guaranteed by the merchant; and
·
Discontinued Items – This category
primarily targets distributors.  Products in this category may include excess inventory, retailer discontinued items
and seasonal items.  We contact such vendors seeking to dispose of such items on a mass scale; and
·
Original Equipment Manufacturers (OEM)
– Wesource products with established brands on an OEM basis, with a strong focus on the value proposition and at times exclusive
products for our website.
Sourcing Process.
The process of sourcing
our offerings includes the following:
·
Vendor Negotiations – Our team of
buyers will negotiate price reductions to regular wholesale prices based on commitments for product depth.  We do not
offer products unless merchants are committed to significant price discounts.
·
Securing Product – Vendors commit
to availability of product when a product is featured. We will verify and confirm allocation or availability of products before
featuring the product in a deal.
·
Price Comparisons – Our sourcing
groups canvas retail and internet suppliers for price comparisons for similar products.  We do not offer products unless
there is a substantial discount to similar products.
·
Vendor Agreements – Vendor agreements
play a crucial role in our business model. We leverage our group buying power to obtain extremely discounted pricing on luxury
items. We obtain agreements with our vendors before featuring the vendor's products on our website. We do not enter into
formal agreements with our vendors. Instead, we intend to source products through individual purchase orders.
The E-Commerce Platform
We post deals on our website, via email
and on social network websites. Daily deals are automatically sent to our members, "tweeted" to our Twitter account,
and posted to our Facebook page.
Logistics & Shipping
Almost all items sold on our website are
shipped directly from vendors to our member customers. We coordinate deliveries through package and "less than truckload"
(LTL) delivery companies to achieve savings in rates for our members. Our member care department coordinates and monitors shipments
from vendors to member customers. Members will be able to track shipments through our website.
Customer Service
We have a dedicated member care group with
two primary functions. One is to answer questions about products, procedures and our business philosophy.  In addition,
our member care group monitors shipments, delivery problems and handles other aspects of post purchase issues that arise.  All
customer returns are sent directly to suppliers.  Member Care and Finance coordinate this process.
31
Competition
In the past few years, the number of group
buying sites has grown rapidly. The markets for the products that we offer are very competitive, are rapidly evolving and have
relatively low barriers to entry. In addition to other online retailers, we compete with the physical stores, catalogs and websites
of traditional offline retailers. Competition may increase in the future, which could require us to reduce prices, increase advertising
expenditures or take other actions that may have an adverse effect on our operating results. We believe that competition in our
market is based predominantly on:
·
price;
·
brand recognition;
·
product selection;
·
product availability;
·
ease-of-use of website; and
·
order delivery performance and customer service.
We compete with a variety of group buying
websites such as GroupOn.com, Gilte.com, OneKingsLane.com and Woot.com.  In addition we will compete with multi-category
retailers such as Google.com, Amazon.com, Overstock.com and Wal-Mart and specialty retailers or manufacturers. Many of our competitors
have greater brand recognition, longer operating histories, larger customer bases and significantly greater financial, marketing
and other resources than we do. New technologies and the continued enhancement of existing technologies also may increase competitive
pressures on our company.
We compete not only for members, but also
for favorable merchant selection and product allocations. Some of our competitors could enter into exclusive distribution arrangements
with our merchants and deny us access to their products, devote greater resources to marketing and promotional campaigns and
devote substantially more resources to their website and systems development than us. In addition, some merchants whose products
will be offered on our website may also sell their products directly to end-users.
We believe that we will enjoy the following
competitive advantages:
·
Our management team has a proven record
of success in launching internet startups and a successful experience in the home furnishings industry.  Braden Richter,
our President and Chief Executive Officer, has been an entrepreneur for over twenty-five years.  We believe his knowledge
of design and sales strategy gleaned from previous experience with leading U.S. furniture retailers will help us gain success in
the luxury group-buying markets and in our negotiations with merchants.
·
We provide deeper discounts by delivering
higher sales volume to merchants, thereby lowering prices for our members.  We negotiate merchandise prices based on
purchase or closeout volume and opportunity buys. Sourcing is price sensitive and low mark-up margins are strictly enforced, so
that members will be benefit from low prices on our products.
·
We position our brand as a luxury website
and offer products on an "exclusive" or "limited" basis which we believe makes providers of high-end products
more comfortable in featuring their products on our website at reduced prices.
·
To maximize sales and ensure positive
cash flow, we plan to leverage viral digital media marketing avenues with a particular emphasis on the social aspect of group buying.
Strategic Alliance
On April 16, 2012, we announced a strategic
alliance with buyinvite, one of Australia's premier members-only private sale sites.  Our two companies will be launching
joint sales events featuring each other's respective brands to a collective audience of over two million members.  buyinvite is
one of Australia's leading flash retail websites with over 1.2 million members throughout Australia and New Zealand. It is the
only 100 percent Australian owned and operated shopping club.
For Luxeyard, the partnership represents
an international sales channel that extends its distribution to a new, scalable consumer marketplace. Under the agreement, buyinvite
will operate sales featuring products from Luxeyard, exposing its members to a wide range of U.S. designer apparel, accessories
and home furnishings.
32
Government Regulation
We are subject to a number of laws and
regulations that affect companies generally and specifically those conducting business on the internet, many of which are still
evolving and could be interpreted in ways that could harm our business.
Existing
and future laws and regulations may impede our growth. These regulations and laws may cover taxation, privacy, data protection,
pricing, content, copyrights, distribution, mobile communications, electronic contracts and other communications, consumer protection,
web services, the provision of online payment services, unencumbered internet access to our services, the design and operation
of websites, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such
as property ownership, libel, and personal privacy apply to the internet, e-commerce, digital content and web services. Unfavorable
regulations and laws could diminish the demand for our products and services and increase our cost of doing business.
Properties
Our principal executive offices are located
in 8884 Venice Blvd., Los Angeles, CA 90034.  As of the date of this prospectus, the properties listed below represented
our materially important facilities. We believe that our properties are generally suitable to meet our needs for the foreseeable
future. However, we will continue to seek additional space as needed to satisfy our growth.
Description of Use
Square
Footage
Location
Term
Rent/Month
Corporate office facilities
2,000
Marina Del Rey, CA
From September 2011 through September 2012
$
4,800
Warehouse and Office Facilities
5,313
Los Angeles, CA
March 1, 2012 to February 28, 2014
$
9,564
Warehouse and Office Facilities
5,500
Brooklyn , New York
March 15, 2012 to March 13, 2013
$
4,583
Corporate Apartment
980
New York, New York
April 3, 2012 to April 2, 2012
$
2,695
Intellectual Property
We regard the protection of our copyrights,
service marks, trademarks, trade secrets and other intellectual property rights as critical to our future success. We rely on various
intellectual property laws and contractual restrictions to protect our proprietary rights in products and services. We have acquired
and registered our domain names with regulatory bodies in an effort to protect these intellectual property rights. It is our policy
to enter into confidentiality and invention assignment agreements with our employees and contractors and nondisclosure agreements
with our suppliers and strategic partners in order to limit access to and disclosure of our proprietary information. We cannot
assure you that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient
to prevent misappropriation of our technology or to deter independent third-party development of similar technologies.
We do not have any trademarks as of the
date of this prospectus.
Employees
As of June 13, 2012, we had 44 full-time
employees. From time to time, we may hire additional workers on a contract basis as the need arises.
Legal Proceedings
On May 2, 2012, the Company and Pacific
Capital Group, Inc. ("PCG") executed a Memorandum of Understanding (the "MOU") that contemplates PCG providing
consulting services to the Company in exchange for an option to purchase shares of the Company.  In subsequent discussions
and email correspondence, the parties have considered various quantities of shares to be subject to purchase by PCG, and the most
recent amount under consideration was 2,000,000.  In emails between the Company and PCG, both parties have discussed whether
"the deal is dead" without an investment from PCG and, to date, the parties have not resolved the number of shares
PCG is eligible to purchase.  Accordingly, there are outstanding, unresolved disputes between the parties with respect to
the MOU related to: (i) whether the MOU constitutes a binding agreement and, if so, (ii) the number of option shares, if any, subject
to the MOU, and (iii) the scope of PCG's consulting services contemplated by the MOU.
33
MARKET PRICE OF AND DIVIDENDS ON OUR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock trades on the OTCQB under
the symbol LUXR. Our common stock had been quoted on the OTC Bulletin Board since March 2, 2011. From March 2, 2011 until February
12, 2012, we traded under the symbol TGRE. Effective February 13, 2012, our symbol changed to LUXR based on the forward split and
name change. The following table sets forth the range of high and low bid quotations for the applicable period. These quotations
as reported by the OTC Bulletin Board reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not
necessarily represent actual transactions.
Bid Quotation
Financial Quarter Ended
High ($)
Low ($)
Period April 1, 2012 to June 11, 2012
$
2.16
$
0.62
March 31, 2012
$
0.90
$
0.50
December 31, 2011
N/A
N/A
September 30, 2011
N/A
N/A
June 30, 2011
N/A
N/A
March 31, 2011 (since March 2, 2011)
N/A
N/A
Holders
At June 13, 2012, there were 69,002,253
shares of our common stock outstanding. Our shares of common stock are held by approximately 92 stockholders of record. At June
13, 2012, there were 8,904,287 shares of our 8% preferred stock outstanding. Our shares of 8% preferred stock are held by 19 stockholders
of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners
of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividends
We have never declared or paid a cash dividend.
Any future decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future
earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the Board of Directors may deem relevant.
Each holder of our 8% preferred stock,
in preference and priority to the holders of all other classes of stock, shall be entitled to receive, with respect to each share
of 8% preferred stock, dividends, commencing from the date of issuance of such share of 8% preferred stock, at the rate of eight
percent (8%) per annum. The 8% preferred stock dividends are cumulative, whether or not earned or declared, and are to be paid
by us quarterly in arrears on the first business day of January, April, July and October in each year. The 8% preferred stock dividends
are to be paid to each holder of 8% preferred stock in cash out of legally available funds. The 8% preferred stock dividends may
also be paid in shares of common stock under certain circumstances.
34
Securities Authorized for Issuance Under
Equity Compensation Plans
The following table summarizes our plan-based awards as of March
31, 2012.
Plan Category
Number of
Securities
To Be Issued
Upon Exercise of
Outstanding
Options,
Warrants and
Rights
(a)
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
(b)
Number of Securities
Remaining Available
For Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(c)
Equity compensation plans approved by security holders
11,909,382
$
0.25
1,095,618
Equity compensation plans not approved by security holders:
-
-
-
Total
11,909,382
$
0.25
1,095,618
35
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis
of the results of operations and financial condition for the fiscal years ended December 31, 2011 and 2010, as well as for the
three month period ended March 31, 2012, and should be read in conjunction with our financial statements, and the notes to those
financial statements that are included elsewhere in this Registration Statement.
Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements
as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Registration Statement. We use words such as "anticipate," "estimate,"
"plan," "project," "continuing," "ongoing," "expect," "believe,"
"intend," "may," "will," "should," "could," and similar expressions
to identify forward-looking statements.
Overview
We function as a member-based online marketplace
for luxury consumer products we source from merchants and offer to our members through our website via a "flash sale"
or "daily deal" at deep discounts to retail prices.  In January 2012, our launched our website www.Luxeyard.com
and began operations. We launched with the product line of home goods and furniture. On March 27, 2012, we launched LuxeStyle apparel
line. Initially, we focused on household furnishings and goods such as furniture, lighting and bedding. We recently expanded into
apparel and accessories.   As our member base and merchant selection increase, we expect to expand our offerings to include
other consumer goods such as travel, gourmet food and beverages, consumer services events and gift cards.
Each week we conduct several "flash
sale" events on our website in which we feature merchandise at steep discounts to suggested retail prices.  At
the beginning of each event, members receive an email describing the featured products and directing them to our website to participate.  We
list events on the member homepage of our website and each event remains on our site for three to five days, depending on demand
and quantity offered.
In addition to flash sales, we also feature
a "Daily Deal" whereby we offer a single product on our website for a 24 hour period.  Similar to flash sales,
our members receive email notifications when deals commence, directing them to the member homepage for more details.  Unlike
other deal of the day models, members are not required to purchase a minimum number of products before the deal becomes active.  In
some cases, when our Group Buy feature is active, as more members participate in the deal, the purchase price decreases.
Members purchase products directly through
our website via credit card and, in most cases, products ship directly from the merchant's location to the member.
With our Concierge Buying program, we use
a model similarly used by companies such as Facebook and Pinterest to determine customer wants. We then source the most popular
products and offer those to the members via a sale that features special notifications and discounts for those who contributed
to the process.
In April we began a Business to Business
program through which we source containers of goods and sell them to retailers. The retailers are offered products prior to the
arrival of the container shipments and any unsold items from the container shipment are then offered on our website.
We operate in an extremely competitive
"flash sales" space within internet retail, which has experienced significant growth in the number of flash sales sites
over the last 24 months, and in the amount of financial support by major private equity firms. We believe our company can distinguish
itself in this environment based on consumer inter-activeness of the site, our dynamic marketing plan, supply chain expertise,
and engagement of industry influences through our LuxeLife Trendsetter program. In addition, we are actively exploring strategic
acquisitions, geographic expansion (including initiatives in India and Australia), and product line diversification, to position
the company for revenue and profitability growth. Our success will depend, among other factors, on the company's ability
to acquire and retain active members in cost-efficient ways, attract merchants at favorable terms, and regularly introduce deals
of high value, quality, and relevance to our members.
36
Recent Developments
Financing
April 2012 Convertible Debentures
On April 24, 2012 we entered into several
Debenture Purchase Agreements with certain investors whereby we issued and sold to the investors 10% Convertible Debentures which
are convertible into shares of our common stock at a conversion price of $0.30 per share, subject to adjustment. The aggregate
original principal amount of all Convertible Debentures is $2,915,000. Based on the aggregate original principal amount sold, the
maximum number of common shares we may be required to issue is 9,716,667.
May 2012 Equity Offering
On May 31, 2012 we completed the sale of
units pursuant to a Securities Purchase Agreement dated May 24, 2012. The units sold in the offering consisted of an aggregate
of (i) 8,904,287 shares of our 8% preferred stock, (ii) Series C warrants to purchase 8,904,287 shares of our common stock which
have a five-year term and an initial per share exercise price of $0.50, subject to adjustment, (iii) Series D warrants to purchase
up to 4,452,144 shares of common stock which have a 90-day term and an initial per share exercise price of $0.35, subject to adjustment,
and (iv) Series E warrants to purchase up to 4,452,144 shares of common stock which have a five-year term and an initial per share
exercise price of $0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross proceeds of approximately $3,116,500,
which includes $225,000 from investors that converted existing debt into the offering. Maxim Group LLC was the placement agent
for the offering.
Increase in Authorized Shares
Effective May 2, 2012, the Company filed
a Certificate of Amendment to its Articles of Incorporation to increase the total number of authorized shares from one hundred
million (100,000,000) shares of which all were common stock, to five hundred fifty million (550,000,000) shares of which five hundred
million (500,000,000) shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check
preferred stock, par value $0.0001. The amendment was declared effective as of May 2, 2012.
Our Business
We have successfully launched our web site
and our home furnishings and apparel divisions. Additionally, we have experienced significant growth in membership, which was approximately
665,600 on June 12, 2012. We are focused on strengthening our relationships with vendors/suppliers and forming strategic alliances
with other web-based merchants who act as distribution partners.  During the next twelve months, we expect to take the following
steps in connection with the further development of our business:
·
Continue scaling our marketing campaign
to attract a high volume of quality members to our website. Marketing initiatives consist of search engine optimization, social
media marketing, referral and affiliate marketing programs, pay-per-click search and display advertising and public relations;
·
Expand upon our member relations and communication
activities, with email retention and activation campaigns, additional editorial content and Celebrity Trendsetter involvement that
will increase our site traffic and build our brand;
·
Continue to improve upon the ability for
our website to deliver a high-quality consumer ecommerce experience, the hallmark of which is access to luxury products at affordable
prices for our members;
·
Identify and partner with more merchants
whose products we want to feature on our website.  We believe featuring a variety of merchants makes our marketplace
more attractive to members;
·
Expand our product offering to include
additional vertical market segments, which may include travel, gourmet food and beverages, consumer services, events and gift cards;
·
Acquire companies whose offerings are
complementary to our categories and accretive to our revenue. We believe the flash sale category is ripe for consolidation, and
as such we are in a position to pursue a strategic acquisition plan;
37
·
Establish new domestic and international
syndication partnerships with companies whose existing customer base can extend the distribution of our products;
·
Build on the momentum of our Concierge
Buying and Group Buy features, which currently differentiate us and we believe hold tremendous value as consumers increasingly
leverage their collective buying power to identify, share and pay for products at the intersection of social, mobile and ecommerce
technologies; and
·
Expand our business-to-business operation
into a key market differentiator and one that will scale on the basis of our ability to source products for thousands of smaller
vendors.
Over the next twelve months, we anticipate
expenses of up to $9,604,248 in general, administrative and corporate expenses and we expect revenue of up to $14,512,311. The
extent of such expenses and revenues will depend upon the successful implementation of our financing strategy and the acceleration
of our business plan.
We raised approximately $1,080,000 in gross
proceeds during 2011 through two equity offerings, and we have raised approximately $6,031,500 through the offering of equity and
debt so far during 2012. We expect to continue to finance our operations primarily through existing cash, profits from normal operations
and equity and/or debt financing in the future.  If we do not obtain additional funding, we will continue to operate
on a reduced budget until such time as more capital is raised. We believe that we could operate with our current cash on hand while
satisfying any shortfall in cash flow with income that will be generated after the launch of our website.  However, to
effectively implement our business plan, we need to obtain financing.
If we obtain additional financing, we would
expect to accelerate our business plan and increase our advertising and marketing budget, hire additional staff members, and increase
operations all of which we believe would result in the generation revenue and development of our business. We also plan to expand
our web presence by acquiring web-based merchants or by forming strategic alliances with other internet companies both domestic
and international.
Results of Operations
Results of Operations for the Three Month Ended March
31, 2012
For the three months ended March 31, 2012,
we had revenues of $155,089 compared to revenue of $2,038 at December 31, 2011. The increase is mainly brought about by the official
launch of our web site in January and the launch of our apparel line in February. Our net operating loss for March 31, 2012 was
$2,161,161 which was mainly brought about by advertising and marketing expenses of $620,417, increase in the number of our employees
from 11 to 40 as of March 31, 2012 and the recognition of an impairment loss of $192,753 on assets acquired from eOpulence, LLC.
Our net loss for the three months ended March 31, 2012 was $8,522,657 which includes a $6,294,694 derivative loss from our outstanding
warrants and the embedded conversion options in our Convertible Debentures since these qualified for derivative accounting treatment
as a result of reset provisions in the exercise/conversion prices of these financial instruments. As of March 31, 2012, we had
total current assets of $285,326 and total current liabilities of $340,519 compared to total current asset of $326,842 and total
current liabilities of $231,333 at December 31, 2011.
Results of Operations for the Year Ended December 31,
2011
We have conducted minimal operations during
the fiscal year ended December 31, 2011 and we have generated revenues of $2,038 during this period.  We had net losses
of $1,038,447 for fiscal 2011. Our auditor has expressed doubt as to whether we will be able to continue to operate as going concern
due to the fact that we have had limited revenues since inception and will need to raise capital to further our operations.
Liquidity and Capital Resources
As of March 31, 2012 we had cash of $204,153
compared to cash of $304,400 (of which $150,000 was restricted) on December 31, 2011.  Our primary uses of cash were
for marketing expenses, employee compensation, and working capital. The main sources of cash were from the proceeds from the private
offering of its securities and from the issuances of debt in the form of debentures. . The following trends are reasonably likely
to result in a material decrease in our liquidity over the near to long term:
38
¨
An increase in working capital requirements,
¨
Our plans to acquire additional web-sites
and compatible businesses
¨
Infrastructure Improvements
¨
Addition of administrative and sales personnel
as the business grows,
¨
Increases in advertising, public relations
and sales promotions as we commence operations,
¨
Development of new members and market
initiation, and
¨
The cost of being a public company and
the continued increase in costs due to governmental compliance activities.
The following summarizes the key components of the Company's
cash flows for the first quarter 2012 and for fiscal 2011:
Q1 2012
Fiscal 2011
Cash flows used in operating activities
$
(1,965,485
)
(713,780
)
Cash flows used for  investing activities
45,238
(17,564
)
Cash flows from financing activities
1,970,000
885,744
Net increase in cash and cash equivalents
$
49,753
154,400
We plan to fund our activities during 2012
and beyond through the sale of debt or equity securities or bank financing. Under the terms of the private placements that we closed
in 2011 and 2012, we are subject to certain provisions, including participation rights and antidilution clauses, which could affect
our ability to obtain additional financing. We cannot be certain that such funding will be available on acceptable terms or available
at all. To the extent that we raise additional funds by issuing debt or equity securities or through bank financing, our stockholders
may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to significantly
scale back, or discontinue, our operations.
Going Concern
Our financial statements have been prepared
on a going concern basis. As of March 31, 2012, we have generated minimal revenues since inception.  We expect to finance
our operations primarily through our existing cash, our operations and any future financing.  However, there exists substantial
doubt about our ability to continue as a going concern because we will be required to obtain additional capital in the future to
continue our operations and there is no assurance that we will be able to obtain such capital, through equity or debt financing,
or any combination thereof, or on satisfactory terms or at all. Additionally, no assurance can be given that any such financing,
if obtained, will be adequate to meet our capital needs. If adequate capital cannot be obtained on a timely basis and on satisfactory
terms, our operations would be materially negatively impacted. Therefore, there is substantial doubt as to our ability to continue
as a going concern. Our ability to complete additional offerings is dependent on the state of the debt and/or equity markets at
the time of any proposed offering, and such market's reception of the Company and the offering terms. There is no assurance
that capital in any form would be available to us, and if available, on terms and conditions that are acceptable.
Critical Accounting Estimates
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect certain reported amounts and disclosures.  Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider cash on hand and demand deposits
with original maturities of three months or less as cash and cash equivalents for the purpose of the statement of cash flows. As
of March 31, 2012 we had $205,153 in cash compared to $154,400 in cash at December 31, 2011.
39
Share-Based Payments
The Company
accounts for share-based awards to employees in accordance with FASB ASC 718 "
Stock Compensation"
.
Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.
Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein
such awards are expensed over the period
in which the related services are rendered at their fair value.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment
in our securities.
Management Consideration of Alternative
Business Strategies
In order to continue to protect and increase
shareholder value management believes that it may, from time to time, consider alternative management strategies to create value
for the company or additional revenues.  Strategies to be reviewed may include acquisitions; roll-ups; strategic alliances;
joint ventures on large projects; and/or mergers.
Management will only consider these options
where it believes the result would be to increase shareholder value while continuing the viability of the company.
40
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key
employees are listed below. The number of directors is determined by our board of directors. All directors hold office until the
next annual meeting of the board or until their successors have been duly elected and qualified. Officers are elected by the board
of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board
of directors.
Directors and Executive Officers
On November 8, 2011, in connection with
the closing of the Securities Exchange, Shalom and Bergman resigned from our Board of Directors and as officers of the Company.  Also
effective upon the closing of the Securities Exchange, Amir Mireskandari and Braden Richter were appointed to our Board of
Directors to fill the vacancies created by the resignations of Shalom and Bergman.  In addition, our Board of Directors
appointed Mr. Richter to serve as our President and Chief Executive Officer, Mr. Walker as our Chief Financial Officer, Chief Operating
Officer and Secretary, Jerry Wilkerson as our Chief Technology and Information Officer and Joshua Thompson as our Chief Marketing
Officer, all effective immediately upon the closing of the Securities Exchange.
On December 20, 2011, the Company and Mr.
Kevin Walker mutually agreed upon the termination of Mr. Walker's employment as Chief Financial Officer, Chief Operating
Officer and Secretary of the Company. The Board of Directors of the Company approved the termination on February 8, 2012. There
was no disagreement between Mr. Walker and the Company on any matter relating to the Company's operations, policies or practices
that resulted in his termination as the Chief Financial Officer, Chief Operating Officer and Secretary of the Company.
On February 8, 2012, the Board appointed
Margot Ritcher as the Chief Financial Officer and Secretary and Steve Beauregard as the Chief Operating Officer of the Company
effective January 9, 2012 and December 1, 2011, respectively.
On March 12, 2012, the Board appointed
Jack Guerrero as Investment Relations Officer.
The following sets forth information about our directors and
executive officers as of the date of this prospectus:
Name
Age
Position
Since
Amir Mireskandari
42
Chairman
November 2011
Braden Richter
40
President, Chief Executive Officer and Director
November 2011
Margot Ritcher
62
Chief Financial Officer and Secretary
January 2012
Steve Beauregard
47
Chief Operating Officer
December 2011
Jerry Wilkerson
39
Chief Technology and Information Officer
November 2011
Joshua Thompson
34
Chief Marketing Officer
November 2011
Jack M. Guerrero
38
Investment Relations Officer
March 2012
Amir Mireskandari
was appointed
as Chairman of our Board of Directors on November 8, 2011.  Mr. Mireskandari was formerly the controlling member of our
subsidiary, LY Retail-Texas, since its formation.  Mr. Mireskandari founded Miresco Investment Services in 1999 and currently
serves as its President and Chief Executive Officer.  Miresco focuses on sales and distribution of home furnishings,
distressed asset and distressed retail operations.  Mr. Mireskandari also serves as Chief Executive Officer of Retail
Management Partners, a company formed in 2010 for the purpose of operating the concessions of the high-end home furnishings, accessories,
rugs, and art departments of The Great Indoors, a division of Sears.  Mr. Mireskandari is also a member of the Board
of Directors of The Lugano Group Incorporated, a FINRA broker-dealer that concentrates on frontier markets, which he co-founded
in 1995.  The Lugano Group offers securities brokerage, financial advisory, and investment promotion services to global
institutions.  Mr. Mireskandari also co serves as Chairman of the Board of Directors of Glenmont Ventures, a boutique
private equity firm he co-founded 2009.  Mr. Mireskandari holds the FINRA General Securities Representative (Series 7)
and Principal (Series 24), Financial and Operations Principal (Series 28), and Uniform Securities Agent (Series 63) licenses. He
earned his BBA and MBA in International Business from George Washington University.  He completed postgraduate studies
in Management at Harvard Business School.  We believe Mr. Mireskandari's extensive experience in the luxury home
furnishings industry and his capital markets knowledge will enable him to provide valuable insight as we seek to implement our
business plan and raise capital to fund our operations.
41
Braden Richter
was appointed
President, Chief Executive Officer and Director of the Company on November 8, 2011.  Mr. Richter has served as the President
and Chief Executive Officer of our subsidiary, LY Retail-Texas, since September 2011.  Prior to his engagement by LY
Retail-Texas, Mr. Richter served as President, Chief Executive Officer and/or as a member of the boards of directors of several
privately held companies, including Archetype Design, Richter Furniture MFG and Richter Studio. He developed and personally designed
trendsetting brands while managing factories with up to 2500 employees.  Mr. Richter currently serves on the board of
directors for Archetype Design, a company he founded in 2009 which has become one of the largest furniture manufactures on the
west coast.  Mr. Richter is also a partner and acting merchandise director of Jaxon International, a retail company based
in Los Angeles.  We believe Mr. Richter's twenty-year career in the home furnishing industry, his entrepreneurial
spirit and his extensive experience in product designs and sale strategy will enable him to provide strong leadership and strategic
vision to the Company.
Margot Ritcher
was appointed
as the Company's Chief Financial Officer and Secretary effective January 9, 2012. From August 2007 to January 2012, she served
as interim controller and management consultant of Arcadian Management Company where she was responsible for financial reporting,
interfacing with external CPA's and regulatory agencies, Tax and Regulatory compliance. Prior to Arcadian, Ms. Ritcher ran an executive
management consulting practice for companies including USA Broadband, CBRE Richard Ellis, People Support, Paycom, LLC, SpotRunner,
and Nextwave Telecommunications. She also served as Controller of DirecTV domestic and worked her way up to Vice President of Business
for DirecTV International. During her 9 year tenure, she helped take DirecTV from 20 employees and no revenue to over 2,000 employees
and $9 billion in revenues.
Margot began her career as a CPA for Coopers
and Lybrand and for Deloitte, Haskins and Sells in Tucson, Arizona.  She has an MBA in Marketing from Regis University in
Denver, Colorado and she holds two undergraduate degrees in accounting and management information systems from the University of
Arizona.
Steve Beauregard
was appointed
as the Company's Chief Operating Officer and head of Emerging Categories effective December 1, 2011. Prior to joining the
Company, Mr. Beauregard was President and Founder of REGARD Solutions Corp, a successful mobile, social and eCommerce development
firm for multi-channel retailers and venture backed start-ups.  He was the driving force behind bringing on key accounts such
as Sony Pictures, Coffee Bean & Tea Leaf, J Hilburn, Ray-Ban, Wells Fargo, Harbor Freight Tools, DIRECTV, and Burlington Coat
Factory.  In 2003, Mr. Beauregard was an early pioneer in offshore development opening a REGARD office Nagpur, India. 
In 2007, he formed software incubator REGARD Ventures Solutions help early-stage entrepreneurs reach venture viability.  Mr.
Beauregard was featured in Entrepreneur Magazine (9/07), is often quoted in trade rags, has spoken at international mobility conferences
and is a frequent guest speaker on entrepreneurship at numerous southern California universities including USC, UCLA and Pepperdine.
He holds two BS degrees in Computer Science and Accounting from Frostburg State University and studied Computer Engineering in
the Master's program at Johns Hopkins University.
Jerry Wilkerson
was appointed
Chief Technology and Information Officer of the Company on November 8, 2011.  Mr. Wilkerson has served as chief technical
& information officer of our subsidiary, LY Retail-Texas, since September 2011.  He also owns his own retail ecommerce
business since 2002.  Mr. Wilkerson brings us a wealth of knowledge and experiences in the web development and information
technology sector.  Throughout his career, Mr. Wilkerson has been involved in various technology position and retail
management along with familiarity with several ecommerce platforms.  Mr. Wilkerson has extensive Microsoft training along
with in depth information technology training.  He has over twenty years' experience in programming, focusing on
web design, since 1999.
Joshua Thompson
was appointed
Chief Marketing Officer of the Company on November 8, 2011.  Mr. Thompson has served as chief marketing officer of our
subsidiary, LY Retail-Texas, since September 2011.  He spent most of his early career in brand development and marketing
at Legal Match from May 2001 through 2011.  Mr. Thompson has extensive experience in brand development and marketing
campaigns.  He graduated from Humboldt State University with a Bachelor of Science degree in Business Administration
in 2000.
42
Jack M. Guerrero
was appointed
Investor Relations Officer of the Company on March 12, 2012. He is also serving as Vice President of Finance. From 2010 to prior
to joining the Company, he was an investment banker with William & Henry Associates in Los Angeles, where he focused on mergers
& acquisitions and sell-side advisory in the middle market. Between 2007-2010, Mr. Guerrero worked with the Transaction Advisory
Practice at Ernst & Young LLP in San Francisco, where he managed financial due diligence for private equity firms and corporate
acquirers. Prior thereto, Mr. Guerrero was a Manager with the American Express Company and a practicing CPA with KPMG LLP. He received
a BA in Economics from Stanford University, and an MBA from Harvard Business School.
Significant Employees
In connection with the asset purchase from
E-Opulence, Christian Vega was appointed the Chief of Business Develop of LY Retail-CA effective February 29, 2012. On March 12,
2012, we appointed Tony Winders as Executive Vice President of Revenue of LY Retail. We consider Mr. Vega and Mr. Winders as significant
employees of the Company.
Name
Age
Position
Since
Christian A Vega
24
Chief of Business Development Officer of LY Retail-CA
February 2012
Tony Winders
43
Executive Vice President of Revenue of LY Retail-CA
March 2012
Christian A Vega
became the
LY Retail-CA's Chief of Business Development on February 29, 2012. Prior to this Mr. Vega was the CEO of E-Opulence, a fashion
based flash sale ecommerce company. He was the founder and creative force both on the technology and brand development of the company.
Mr. Vega began his career with Cross Cultural Solution, volunteering for NGO in India. In 2008 Mr. Vega was Executive Manager of
Strategies and Accounts for Force Marketing where he opened their first office in Massachusetts and then expanded their territory
to New York and New Jersey. In 2009 Mr. Vega was an operations specialist at Mercedes distribution where he was heavily involved
on the logistics side of ecommerce, after which Mr. Vega was an associative consultant with the World Trade Center Memorial Museum,
opening and maintaining their first ever "Preview" site of the memorial museum until he founded eOpulence in October
2010. He studied Bio-Medical engineering at university but did not complete his degree as business opportunities and his entrepreneurial
spirit trumped his interest in medicine.
Tony Winders
became Executive
Vice President of Revenue effective March 12, 2012. Prior to joining the company, Mr. Winders was vice president, marketing at
ValueClick, Inc. As a member of its media division management team from June, 2003 to November, 2010, his marketing leadership
helped establish the company as one of the largest and most respected display advertising and lead generation networks in the world.
He was previously vice president, sales and marketing at pay-per-click search engine Search123, which ValueClick acquired in 2003.
An early pioneer of online marketing and advertising, Mr. Winders co-founded InterActive Agency, Inc. (iAgency) in 1995, and served
as its president until 2002. At iAgency, he devised online marketing strategies for dozens of consumer entertainment, ecommerce
and technology brands, including Zappos.com, Coca Cola, Warner Bros. Studio Store, Universal Studios Online, SegaSoft, Symantec
and Hollywood Online. He began his career in public relations in the early 1990s as an account executive at Paladino & Associates
Public Relations in Hollywood and then as director of client programs as at Murphy/O'Brien Communications in Beverly Hills.
Mr. Winders holds a Bachelor of Science degree in public relations from the University of Central Missouri.
Family Relationships
There are no family relationships among any of our officers
or directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our current directors
or executive officers has, during the past ten years:
·
been convicted in a criminal proceeding
or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
had any bankruptcy petition filed by or
against the business or property of the person, or of any partnership, corporation or business association of which he was a general
partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
43
·
been subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority,
permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities,
futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged
in any such activity;
·
been found by a court of competent jurisdiction
in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated;
·
been the subject of, or a party to, any
federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated
(not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or
state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or
·
been the subject of, or a party to, any
sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Except as set forth in our discussion below
in "Certain Relationships and Related Transactions," none of our directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the SEC.
Code of Ethics
The former members of our Board of Directors
adopted a Code of Ethics applicable to our principal executive, financial and accounting officers on January 13, 2011.  Although
our newly appointed executive officers are subject to this Code of Ethics, the newly appointed members of our Board of Directors
intend to adopt of new Code of Ethics.  However, no formal steps have been taken by the Board of Directors in this regard.
44
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information
regarding each element of compensation that paid or awarded to the named executive officers for the years ended December
31, 2011 and December 31, 2010.
Name and
Principal Position
Year
Salary($)
Bonus
All Other
Compensation
($)
Total ($)
Braden Richter
2011
$
69,230
$
0
$
0
$
69,230
President and Chief Executive Officer
2010
$
-
$
-
$
-
$
-
Steve Beauregard
2011
$
5,770
$
0
$
0
$
5,770
Chief Operating Officer
Jerry Wilkerson
2011
$
37,500
$
0
$
0
$
37,500
Chief Technology and Information Officer
2010
$
-
$
-
$
-
$
-
Joshua Thompson
2011
$
31,250
$
0
$
0
$
31,250
Chief Marketing Officer
2010
$
-
$
-
$
-
$
-
Omri Amos Shalom
2011
$
0
$
0
$
0
$
0
Former Chief Executive Officer, Chief Financial
2010
$
0
$
0
$
0
$
0
Officer and Director
Akiva Bergman
2011
$
0
$
0
$
0
$
0
Former Secretary and Director
2010
$
0
$
0
$
0
$
0
Kevin Walker
2011
$
40,000
$
0
$
0
$
40,000
Former Chief Financial Officer, Chief Operating Officer and Secretary
2010
$
-
$
-
$
-
$
-
Employment Agreements
On November 8, 2011, we entered into an
employment agreement with LY Retail-CA, and Braden Richter, as our President and Chief Executive Officer, effective November 23,
2011, for a period of five years until November 22, 2016. We agreed to pay a base salary of $300,000 per annum during the term
with an annual cumulative increase of not less than 4% and bonus under certain conditions. Pursuant to the agreement, Mr. Richter
was also granted an option to purchase 1,950,000 shares of our comment stock under the stock option plan.
On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Steve Beauregard, as our Chief Operating Officer, effective December 1, 2011, for a
period of three years until November 30, 2014. We agreed to pay a base salary of $175,000 per annum, provided that, if the Company
meets its fiscal goals for the previous year, Mr. Beauregard shall be paid the sum of $200,000 for the second year of the term
and $250,000 for the third year of the term. Mr. Beauregard will be also designated as a participant in the bonus plan of $300,000
which will be shared amongst the participants. Pursuant to the agreement, Mr. Beauregard was also granted an option to purchase
1,950,000 shares of our comment stock under the stock option plan.
45
On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Jerry Wilkerson, as our Chief Technology Officer, effective December 1, 2011, for a
period of three years until November 30, 2014. We agreed to pay a base salary of $150,000 per annum, provided that, if the Company
meets its fiscal goals for the previous year, Mr. Wilkerson shall be paid the sum of $200,000 for the second year of the term.
For each year thereafter, the Board shall review such base salary and shall provide a minimum of 4% annual increase in its discretion.
Mr. Wilkerson will be also designated as a participant in the bonus plan of $300,000 which will be shared amongst the participants.
Pursuant to the agreement, Mr. Wilkerson was also granted an option to purchase 1,950,000 shares of our comment stock under the
stock option plan.
On November 8, 2011, we entered into an
employment agreement with LY Retail-CA and Joshua Thompson, as our Chief Marketing Officer, effective December 1, 2011, for a period
of three years until November 30, 2014. We agreed to pay a base salary of $125,000 per annum with an annual cumulative increase
of not less than 4% at the discretion of the Board. Mr. Thompson will be also designated as a participant in the bonus plan of
$300,000 which will be shared amongst the participants. Pursuant to the agreement, Mr. Thompson was also granted an option to purchase
1,950,000 shares of our comment stock under the stock option plan.
On February 27, 2012, we entered into an
employment agreement with LY Retail-CA and Christian Vega, as our LY Retail-CA's Chief of Business Development, effective
February 27, 2012, for a period of three years until February 20, 2015. We agreed to pay a base salary of $110,000 per annum during
the term with increase to $150,000 on attainment of certain milestones. Pursuant to the agreement, Mr. Vega was also granted an
option to purchase 200,000 shares of our common stock.
On March 12, 2012, we entered into an employment
agreement with LY Retail-CA, and Tony Winders, as Executive Vice President of Revenue of LY Retail-CA, effective March 12, 2012,
for a period of three years until March 11, 2015. We agreed to pay a base salary of $120,000 per annum during the term with an
increase to $132,500 per annum based the attainment of certain milestones and an increase to $150,000 based on certain milestones.
Mr. Winders shall be designated as a participant in the Company's Key Employee Cash Bonus Plan. Such bonus pool of was raised
to from $300,000 to $500,000 with the addition of new participants. Pursuant to the agreement, Mr. Winders was also initially granted
an option to purchase 250,000 shares of our common stock and will be granted an additional 250,000 on attainment of certain milestone.
Pursuant to the agreements, all the above
executives are also entitled to other standard benefits such as insurance plan, vacation and reimbursement of reasonable out-of-pocket
expenses.
Severance Agreement
In connection with the termination of Kevin
Walker as our executive officer, we entered into a severance agreement with LY Retail-Texas and Kevin Walker on December 20, 2011
pursuant to which we agreed to pay to Mr. Walker any unpaid salary, unreimbursed expenses and a severance payment. The severance
payment equals to three months of Mr. Walker's base salary and is payable in two installments of $13,333.33 and $11,688 for
a sum of $38,352. In addition, Mr. Walker was granted an option to purchase 400,010 shares of our common stock under our stock
option plan.
46
Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number
of securities underlying outstanding plan awards for each named executive officer as of December 31, 2011.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price ($)
Option
Expiration
Date
Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested ($)
(4)
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)
Name
Exercisable
Unexercisable
Braden Richter
1,950,000
1,300,000
$
0.20
10/1/21
Joshua Thompson
1,950,000
1,300,000
$
0.20
9/26/21
Jerry Wilkerson
1,950,000
1,300,000
$
0.20
9/26/21
Steve Beauregard
1,950,000
1,300,000
$
0.20
11/1/21
Kevin Walker
400,010
$
0.20
9/26/21
Director Compensation
The Company has not compensated any of
its directors for service on the Board of Directors. Management directors are not compensated for their service as directors; however
they may receive compensation for their services as employees of the Company. The compensation received by our management directors
is shown in the "Summary Compensation Table" above.
2012 Stock Option Plan
On February 24, 2012, the Board and majority
shareholders of the Company approved the Luxeyard, Inc. 2012 Stock Option Plan (the "Plan"). The Plan gives us the
ability to grant stock options, restricted stock, stock appreciation rights (SARs), and other stock-based awards (collectively,
"Awards") to employees or consultants of the Company or of any subsidiary of the Company and to non-employee members
of our advisory board or our Board of Directors or the board of directors of any of our subsidiaries. Our Board of Directors believes
that adoption of the Plan is in the best interests of our company and our stockholders because the ability to grant stock options
and make other stock-based awards under the Plan is an important factor in attracting, stimulating and retaining qualified and
distinguished personnel with proven ability and vision to serve as employees, officers, consultants or members of the Board of
Directors of our company and our subsidiaries, and to chart our course towards continued growth and financial success. Therefore,
our Board of Directors believes the Plan will be a key component of our compensation program.
As of June 11, 2012, 1,095,618 shares of our common stock remained
available for future grants under the Plan.
47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding our shares of common stock beneficially owned as of June 11, 2012 for (i) each stockholder known to be the
beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii)
all executive officers and directors as a group.  A person is considered to beneficially own any shares: (i) over which
such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the
right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise.
Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive
officers is exercised solely by the beneficial owner or shared by the owner and the owner's spouse or children.
For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares of common stock that such person has the right
to acquire within 60 days of June 11, 2012.  For purposes of computing the percentage of outstanding shares of our common
stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within
60 days of June 11, 2012 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.  The inclusion herein of any shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
Unless otherwise specified, the address
of each of the persons set forth below is in care of the Company, 8884 Venice Blvd., Los Angeles, CA 90034.
Name of Beneficial Owner
Amount and
Nature
of Beneficial
Ownership
Percent of
Common Stock
(1)
Executive Officers and Directors
Amir Mireskandari (2)
19,302,560,
(3)
15.10
%
Braden Richter (4)
728,572
0
%
Margot Ritcher
0
(5)
*
%
Steve Beauregard (4)
0
0
%
Jerry Wilkerson (4)
0
0
%
Joshua Thompson (4)
0
0
%
Jack M. Guerrero
0
(5)
*
%
All directors and executive officers as a group (7 persons)
20,031,131
25.42
%
Other 5% Shareholders
Huttner 1999 Partnership Ltd. (6)
22 Latigo Road
Durango, Co 81301
4,553,218
(6)
5.78
Pergament Multi-Strategy Opportunities LP (7)
237 Park Avenue, 9
th
Floor
New York, NY 10017
8,571,429
(7)
10.88
%
48
* Less than 1%
(1) Based on 69,002,253 shares of common
stock issued and outstanding June13, 2012 and 8,904,287 shares of preferred stock issued and outstanding as of June 13, 2012
(2) In connection with the private placement
closed on November 8, 2011, Mr. Mireskandari entered into a lock-up/leak-out agreement with the Company pursuant to which he
is restricted from offering, pledging, selling, contracting to sell, selling any option or contracting to purchase, lend, transfer
or otherwise dispose of any shares of common stock of the Company or any other securities convertible or exercisable for shares
of the Company's common stock for the nine month period following the closing of the offering and for an additional nine
months following such period, to limit any transfers to 850,000 shares of common stock in any 30 day period and 170,000 shares
of common stock on any single day.
(3) Includes (i) 17,944,668 shares
of common stock, (ii) 83,708 shares of common stock underlying Series A Warrants and 167,416 shares of common stock underlying
Series B Warrants issued to Mr. Mireskandari in the private placement closed on November 8, 2011 that are immediately exercisable,
(iii) 125,000 shares of common stock underlying Series A Warrants and 250,000 shares of common stock underlying Series B Warrants
issued to Mr. Mireskandari in the private placement closed on December 15, 2011 that are immediately exercisable, (iv) 83,333
shares of common stock upon conversion of certain convertible debenture dated January 26, 2012, (v) 285,714 shares of preferred
stock issued in a private placement dated May 31, 2012, and (vi) 285,714 shares of common stock underlying Series C Warrants issued
in a private placement dated May 31, 2012, (vii) 142,857 shares of common stock underlying Series D Warrants issued in a private
placement dated May 31, 2012, and (viii) 142,857 shares of common stock underlying Series E Warrants issued in a private placement
dated May 31, 2012
(4) Messrs. Richter, Beauregard, Wilkerson,
Thompson and Alattar entered into lock-up agreements with the Company pursuant to which each is restricted from offering,
pledging, selling, contracting to sell, selling any option or contracting to purchase, lend, transfer or otherwise dispose of any
shares of common stock of the Company or any other securities convertible or exercisable for shares of the Company's common
stock for a period of eighteen month.
(5) Includes vested shares granted under
the Company's 2012 Stock Option Plan and exercisable within 60 days.
(6) Richard Huttner has voting and control
power over the shares held by this entity. Includes (i) 580,001 shares of common stock, (ii) 62,501 shares of common stock underlying
Series A Warrants and 125,002 shares of common stock underlying Series B Warrants issued to Huttner 1999 Partnership Ltd in the
private placement closed on November 8, 2011 that are immediately exercisable,(iii) 250,000 shares of common stock upon conversion
of certain convertible debenture dated January 26, 201 (iv) 1,178,571 shares of preferred stock issued to Huttner 1999 Partnership
Ltd in the private placement closed May 31, 2012, (v) 1,178,571 shares of common stock underlying Series C Warrants issued in a
private placement dated May 31, 2012, (vii) 589,286 shares of common stock underlying Series D Warrants issued in a private placement
dated May 31, 2012, and (viii) 589,286 shares of common stock underlying Series E Warrants issued in a private placement dated
May 31, 2012
(7) Steven T. Brown has voting and control
power over the shares held by this entity. (iv) 2,857,143 shares of preferred stock issued to Pergament Mult-Strategy Opportunities
LP in the private placement closed May 31, 2012, (v) 2,857,143 shares of common stock underlying Series C Warrants issued in a
private placement dated May 31, 2012, (vii) 1,428,571 shares of common stock underlying Series D Warrants issued in a private placement
dated May 31, 2012, and (viii) 1,428,571 shares of common stock underlying Series E Warrants issued in a private placement dated
May 31, 2012.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Transactions with Related Persons
The following includes a summary of transactions
since the beginning of fiscal 2010, or any currently proposed transaction, in which we were or are to be a participant and the
amount involved exceeded or exceeds $120,000 and in which any related person had or will have a direct or indirect material interest
(other than compensation described under "Executive Compensation"). We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available
or the amounts that would be paid or received, as applicable, in arm's-length transactions.
·
Pursuant to the Securities Exchange Agreement,
on November 8, 2011, we issued 30,349,998 shares of our common stock to Amir Mireskandari and Khaled Alattar, the former members
of LY Retail-Texas.  Immediately following the Securities Exchange, Mireskandari and Alattar became our principal stockholders.
Mr. Mireskandari was also appointed as the Chairman of our Board of Directors.
49
·
Pursuant to the private placement that
closed on November 8, 2011, we issued (i) 167,416 shares of our common stock to Mireskandari and 482,579 shares of our common stock
to Alattar; (ii) Series A Warrants exercisable for 83,708 shares of our common stock to Mireskandari and Series A Warrants exercisable
for 241,298 shares of our common stock to Alattar; and (iii) Series B Warrants exercisable for 83,708 shares of our common stock
to Mireskandari and Series B Warrants exercisable for 241,298 shares of our common stock to Alattar.  In consideration
for the purchase price for such securities, Mireskandari and Alattar delivered to the Company Bridge Notes in the aggregate principal
amount of $115,000.  In addition, Mireskandari paid $15,000 in cash.
·
Pursuant to the private placement that
closed on December 15, 2011, we issued (i) 250,002 shares of our common stock to Mireskandari (ii) Series A Warrants exercisable
for 125,001 shares of our common stock to Mireskandari (iii) Series B Warrants exercisable for 125,001 shares of our common stock
to Mireskandari for which Mr. Mireskandari paid $50,000 in cash.
·
Pursuant to a convertible debenture dated
January 26, 2012, Mr. Mireskandari contributed a debenture amount of $50,000 convertible into 166,667 shares of our common stock
and Mr. Alattar contributed a debenture amount of $175,000 convertible into 583,333 shares of our common stock.
·
On November 8, 2011, we entered into the
Agreement of Sale with Shalom and Bergman pursuant to which we sold our equity interest in SpinCo to Shalom and Bergman in exchange
for 119,000,000 shares of our common stock.
·
Prior to the Securities Exchange, LY Retail-Texas
and Mireskandari and Alattar entered into Bridge Notes in the aggregate principal amount of $115,000.  As set forth above,
such Bridge Notes were exchanged for units in the offering.
·
On January 26, 2012, we subleased approximately
5,313 square feet of office and warehouse space in Los Angeles California from a related party ("Venice" lease). The
lease is a twenty four month operating lease with monthly rent expense of $9,564 per month. Our CEO and Director are related to
the sublessor of the Venice property. Payments on the sub-lease were $28,690 for the three months ended March 31, 2012.
·
In May, 2012 we entered into an MOU with
Home Loft, Inc. to acquire their Leather Groups, web site and certain assets. Our Chief Technology Officer owns Home Loft, Inc.
We have not reached a formal agreement as of this date.
·
On May 1, 2012 we entered into an operating
agreement with Jaxon International, LLC. The Company Pays Jaxon $40,500 per month to cover their operating expense and keeps all
of the profits from the store as compensation for operating it. Our CEO and Director is related to the owner of Jaxon International,
LLC.
50
DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists of
500,000,000 shares of common stock at a par value of $0.0001 per share and 50,000,000 shares of preferred stock at a par value
of $0.0001 per share, of which 10,000,000 is designated as 8% Convertible Perpetual Preferred Stock. As of June 11, 2012, 69,002,253
shares of our common stock and 8,904,287 shares of our 8% preferred stock were issued and outstanding.
Common Stock
Holders of our common stock are entitled
to one vote for each share on all matters submitted to a stockholder vote. Our common stock does not have cumulative voting rights.
Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors.
Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled
to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by
the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation,
merger or an amendment to our certificate of incorporation. Although there are no provisions in our charter or by-laws that may
delay, defer or prevent a change in control, the board of directors is authorized, without shareholder approval, to issue shares
of preferred stock that may contain rights or restrictions that could have this effect. Holders of common stock are entitled to
share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation,
dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment
of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common
stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Preferred Stock
Our certificate of incorporation provides
that we are authorized to issue up to 50,000,000 shares of preferred stock with a par value of $0.0001 per share. Our Board of
Directors has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one
or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the board may
determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase
funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders
of common stock.
8% Convertible Perpetual Preferred
Stock
On May 25, 2012, the Company filed with
the Secretary of State of the State of Delaware a Certificate of Designation (the "Certificate") establishing the voting
powers, designations, preferences, limitations, restrictions and relative rights of the 8% preferred stock.
Dividends
.
Each
holder of Shares is entitled to receive dividends at the rate of eight percent per year of the original issue price. The 8% preferred
stock dividends are cumulative, whether or not earned or declared, and are to be paid quarterly. The Company may elect pay dividends
in cash or shares (if certain notice and certain equity conditions are satisfied).
51
Liquidation Rights.
Upon
the voluntary or involuntary liquidation, winding-up or dissolution of the Company, the holders of the Shares may exercise their
rights to convert all or a portion of their Shares into common stock. Each holder of Shares that does not exercise its rights to
convert shall be entitled to receive out of the assets of the Company, for each Share, cash in an amount equal to (i) the original
issue price plus (ii) all accrued but unpaid dividends on the shares, before any payment or distribution shall be made on the Junior
Stock (as defined in the Certificate), but after payment of all outstanding indebtedness and all amounts due on liquidation, dissolution
or winding-up in respect of all preferred stock of the Company which by its terms is senior to the Shares, if any. If the assets
of the Company available for distribution to the holders of the Shares upon any liquidation, dissolution or winding-up of the Company
are insufficient to pay the full preferential amount to which the holders are entitled, then the holders of the Shares shall share
in such distribution of assets pro rata in accordance with the amount that would be payable on such distribution if the amounts
to which the holders of Shares were entitled were paid in full. A Fundamental Transaction (as defined in the Certificate) shall
be treated as a liquidation for purposed of the liquidation preference contained in the Certificate. Prior to the consummation
of such Fundamental Transaction, the holders of Shares may exercise their rights to convert all or a portion of their Shares into
Common Stock.
Voting Rights
. With respect
to any matter on which the holders of common stock shall be entitled to vote, the holders of Shares shall vote together with the
holders of common stock, and not as a separate class, and each share shall have a number of votes equal to the number of shares
of common stock then issuable upon conversion.
Optional Conversion by Holder
.
The holder of any Shares has the right at such holder's option to convert the Shares into such number of shares of fully paid and
nonassessable shares of common stock as is determined by dividing the original issue price by the conversion price, multiplied
by the number of Shares being converted.
Adjustments to Conversion
Price.
The conversion price of the Shares are subject to adjustment upon certain events, such as stock splits, combinations,
dividends, distributions, reclassifications, reorganizations, mergers or other corporate changes. In addition, subject to certain
exceptions, if at any time after the Closing Date, the Company issues or sells any shares of its common stock (including options
and convertible securities) at a price per share less than the applicable conversion price of the Shares then in effect issue price
(each, a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the conversion price of the Shares then
in effect shall be reduced to an amount equal to the price per share of such Dilutive Issuance.
Warrants
The Series A Warrants have a five-year
term and are exercisable for an aggregate of 2,700,006 shares of our common stock at an initial per share exercise price of $0.30,
subject to adjustment as set forth below.
The Series B Warrants have a
five-year term and are exercisable for an aggregate of 2,700,006 shares of our common stock at an initial per share exercise
price of $0.60 (the exercise price was reset to $0.30 effective May 1, 2012), subject to certain adjustment, such as stock splits, combinations, dividends, distributions,
reclassifications, mergers or other corporate changes.  In addition, subject to certain exceptions, if at any time
after the closing date, the Company issues or sells any shares of its common stock at a price per share less than the
exercise price of the applicable warrant, then immediately after such new issuance, the exercise price of the applicable
warrant then in effect shall be reduced to an amount equal to the price per share of such new issuance.  If the
warrants are not registered with the Securities Act, the warrants can be exercised on a cashless basis.
The Series C Warrants have a five-year
term and are exercisable for an aggregate of up to 8,904,287 shares of the Company's common stock at an initial per share
exercise price of $0.50, subject to adjustment as set forth below.
The Series D Warrants have a 90 day term
and are exercisable for an aggregate of up to 4,452,144 shares of the Company's common stock at an initial per share exercise
price of $0.35, subject to adjustment as set forth below.
The Series E Warrants have a five-year
term and are exercisable for an aggregate of up to 4,452,144 shares of the Company's common stock at an initial per share
exercise price of $0.50, subject to adjustment as set forth below.
52
The exercise prices of the Series C Warrants,
Series D Warrants and Series E Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends,
distributions, reclassifications, mergers or other corporate changes. In addition, subject to certain exceptions, if at any time
after the closing date, the Company issues or sells any shares of its common stock (including options and convertible securities)
at a price per share less than the exercise price of the applicable Warrant (each, a "Dilutive Issuance"), then immediately
after such Dilutive Issuance, the exercise price of the applicable Warrants then in effect shall be reduced to an amount equal
to the price per share of such Dilutive Issuance. The warrants can be exercised on a cashless basis if certain conditions are met.
Purchase Rights
. In addition to
any adjustments pursuant to the warrant, if at any time the Company grants, issues or sells any options, convertible securities
or rights to purchase stock, warrants, securities or other property pro rata to the record holders of common stock, then the holder
will be entitled to acquire the aggregate purchase rights which the holder could have acquired if the holder had held the number
of shares of common stock acquirable upon complete exercise of the warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such purchase rights.
Fundamental Transactions.
The Company
may not enter into or be party to a Fundamental Transaction (as defined in the warrant) unless (i) the successor entity assumes
in writing all of the obligations of the Company under the warrant in form and substance reasonably satisfactory to the holders
of a majority of the Company warrants outstanding on such date (the "Required Holders") and approved by the Required
Holders prior to such Fundamental Transaction, and (ii) the successor entity is a publicly traded corporation whose common stock
is quoted on or listed for trading on an approved exchange.
Limitation on Directors' Liability
Delaware law authorizes Delaware corporations
to limit or eliminate the personal liability of their directors to them and their stockholders for monetary damages for breach
of a director's fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors
must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations
Delaware law authorizes, directors of Delaware corporations are accountable to those corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty of care. Delaware law enables Delaware corporations
to limit available relief to equitable remedies such as injunction or rescission. Our certificate of incorporation limits the liability
of our directors to us and our stockholders to the fullest extent Delaware law permits. Specifically, no director will be personally
liable for monetary damages for any breach of the director's fiduciary duty as a director, except for liability:
●
for any breach of the director's duty of loyalty to us or our stockholders;
●
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law;
●
for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law (the "DGCL"); and
●
for any transaction from which the director derived an improper personal benefit.
This provision could have the effect of
reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management
from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might
otherwise have benefited us and our stockholders. Our bylaws provide indemnification to our officers and directors and other specified
persons with respect to their conduct in various capacities. See "Indemnification of Directors and Officers."
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or person controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
53
Anti-Takeover Effects of Provisions
of the DGCL and our Certificate of Incorporation and Bylaws
Provisions of the DGCL and our certificate
of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise,
or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking
to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of
our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could
result in improved terms for our stockholders.
Delaware Anti-Takeover Statute.
We were subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period
of three years following the time the person became an interested stockholder, unless the business combination or the acquisition
of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person 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 a corporation's
voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not
approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.
We are not subject to Section 203 of the
DGCL because we do not have a class of voting stock that is listed on a national securities exchange or held of record by more
than 2,000 stockholders and we have not elected by a provision in our original certificate of incorporation to be governed by Section
203. Unless we adopt an amendment of our certificate of incorporation by action of our stockholders expressly electing not to be
governed by Section 203, we would generally become subject to Section 203 of the DGCL at such time that we have a class of voting
stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders, except that the
restrictions contained in Section 203 would not apply if the business combination is with an interested stockholder who became
an interested stockholder before the time that we have a class of voting stock that is either listed on a national securities exchange
or held of record by more than 2,000 stockholders.
Amendments to Our Certificate
of Incorporation.
Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote thereon and
a majority of the outstanding stock of each class entitled to vote thereon is required to amend a corporation's certificate
of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote
as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment
would:
●
increase or decrease the aggregate number of authorized shares of such class;
●
increase or decrease the par value of the shares of such class; or
●
alter or change the powers, preferences or special rights of the shares of such class so as to
affect them adversely.
If any proposed amendment would alter or
change the powers, preferences or special rights of one or more series of any class of our capital stock so as to affect them adversely,
but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a
separate class for the purposes of this provision.
Vacancies in the Board of Directors.
Our bylaws provide that, subject to limitations, any vacancy occurring in our board of directors for any reason may be filled by
a majority of the remaining members of our board of directors then in office, even if such majority is less than a quorum. Each
director so elected shall hold office until the expiration of the term of the other directors. Each such directors shall hold office
until his or her successor is elected and qualified, or until the earlier of his or her death, resignation or removal.
Special Meetings of Stockholders.
Under our bylaws, special meetings of stockholders may be called at any time by our President whenever so directed in writing by
a majority of the entire board of directors. Special meetings can also be called whenever one-third of the number of shares of
our capital stock entitled to vote at such meeting shall, in writing, request one. Under the DGCL, written notice of any special
meeting must be given not less than 10 nor more than 60 days before the date of the special meeting to each stockholder entitled
to vote at such meeting.
54
No Cumulative Voting.
The DGCL provides
that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.
Listing
Our common stock is listed on the OTCQB under the symbol "LUXR."
Transfer Agent
The transfer agent and registrar for our common stock is VStock
Transfer, LLC. The transfer agent's address is 77 Spruce Street, Suite 201, Cedarhurst, NY 11516, and its telephone number
is (212) 828-8436.
55
PLAN OF DISTRIBUTION
The common shares being offered for resale by the selling stockholders
consist of 39,144,590 shares. We will pay any fees and expenses incurred by us incident to the registration of the securities.
Each selling stockholder of the securities
and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered
hereby on the OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions.
These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling
securities:
•
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
•
block trades in which the broker-dealer will attempt to sell the securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
•
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
•
an exchange distribution in accordance with the rules of the applicable exchange;
•
privately negotiated transactions;
•
settlement of short sales entered into after the effective date of the registration statement of
which this prospectus is a part;
•
in transactions through broker-dealers that agree with the selling stockholders to sell a specified
number of such securities at a stipulated price per security;
•
through the writing or settlement of options or other hedging transactions, whether through an
options exchange or otherwise;
•
a combination of any such methods of sale; or
•
any other method permitted pursuant to applicable law.
The selling stockholders may also sell
securities under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance
with FINRA IM-2440.
In connection with the sale of the securities
or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling stockholders
may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities
to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
56
The selling stockholders and any broker-dealers
or agents that are involved in selling the securities may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the securities.
The resale securities will be sold only
through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states,
the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any person engaged in the distribution
of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders
will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other person.
We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy
of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities
Act).
LEGAL MATTERS
The validity of the shares of common stock
offered by this prospectus and certain other legal matters as to Delaware law will be passed upon for us by Anslow & Jaclin
LLP, Manalapan, New Jersey.
EXPERTS
Our audited consolidated financial statements
appearing in this prospectus and registration statement have been audited by
MaloneBailey,
LLP
, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and
in the registration statement, and are included in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the SEC a registration statement
under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the registration statement. For further information with
respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration
statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other
document filed as an exhibit to the registration statement.
We file annual, quarterly, and current
reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC's website at
www.sec.gov. Those filings are also available to the public on our corporate website at www.Luxeyard.com. The information we file
with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part
of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC's
prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus
is a part, at the SEC's Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC
at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.
57
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION OF
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling persons of our company under Delaware law or otherwise,
our company has been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
58
39,144,590
Shares of Common Stock
LUXEYARD, INC.
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
Until _____________, all dealers that effect
transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
The date of this prospectus is
, 2012
59
PART II— INFORMATION NOT REQUIRED
IN THE PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution.
Securities and Exchange Commission registration fee
$
2,500
Federal Taxes
0
State Taxes and Fees
0
Transfer Agent Fees
$
775
Accounting fees and expenses
0
Legal fees and expense
$
105,000
Blue Sky fees and expenses
$
5,875
Miscellaneous
0
Total
$
114,150
All amounts are estimates other than the
SEC's registration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne
by the selling stockholders. The selling stockholders, however, will pay any other expenses incurred in selling their common stock,
including any brokerage commissions or costs of sale.
Item 14. Indemnification of Directors
and Officers.
Section 102(b)(7) of the Delaware General
Corporation Law allows a corporation to provide in its certificate of incorporation that a director of the corporation will not
be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except
where the directors breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated
a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an
improper personal benefit. Our certificate of incorporation provides for this limitation of liability.
Section 145 of the General Corporation
Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made,
party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director,
employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer employee or
agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or were, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such officer or directors has actually and reasonably incurred.
Section 145 further authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether
or not the corporation would otherwise have the power to indemnify him under Section 145.
60
Our bylaws provide that we will indemnify
our directors and officers to the fullest extent authorized by the General Corporation Law of the State of Delaware and shall pay
expenses incurred (including attorneys' fees) in defending any proceeding in advance of its final disposition upon receipt
of an undertaking, by an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person
is not entitled to be indemnified under this section or otherwise.
The indemnification rights set forth above
shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
We maintain a general liability insurance
policy that covers liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in
their capacities as directors or officers.
Item 15. Recent Sales of Unregistered
Securities.
On May 31, 2012, we completed a private
offering of units consisting of an aggregate of (i) 8,904,287 shares of its 8% preferred stock, (ii) Series C warrants
to
purchase 8,904,287 shares of its common stock which have a five-year term and an initial per share exercise price of $0.50
,
subject to adjustment, (iii) Series D warrants to purchase up to 4,452,144 shares of common stock
which
have a 90 day term and an initial per share exercise price of $
0.35, subject to adjustment, and (iv) Series E warrants to
purchase up to 4,452,144 shares of common stock
which have a five-year term
and an initial per share exercise price of $
0.50, subject to adjustment. The price per unit was $0.35 for aggregate gross
proceeds of approximately $3,116,500.
On April
24, 2012, we completed a private placement by issuing to the investors, Notes aggregating $
2,915,000
that are convertible into an aggregate of 9,716,667 Shares at a conversion price of $0.30 per share, subject to adjustment.
On December 15, 2011, we completed a private
offering of units consisting of an aggregate of (i) 2,250,016 shares of our common stock, (ii) Series A Warrants
to
purchase 1,125,008 shares of our common stock which have a five-year term and an initial per share exercise price of $
0.30,
subject to adjustment, and (iii) Series B Warrants
to purchase 1,125,008
shares
of our common stock which have a five-year term and an initial per share exercise price of $
0.60, subject to adjustment.  The
price per unit was $0.20 for an aggregate purchase price of $450,000 (the "Purchase Price").
On November 8, 2011, we completed a private
offering of units consisting of an aggregate of (i) 3,150,012 shares of our common stock, (ii) Series A warrants
to
purchase 1,574,998
shares of common stock which have a five-year term and an initial
per share exercise price of $
0.30, subject to adjustment as described below (the "Series A Warrants"), and (iii)
Series B warrants
to purchase 1,574,998
shares
of common stock which have a five-year term and an initial per share exercise price of $
0.60, subject to adjustment as described
below (the "Series B Warrants").  The price per unit was $0.20 for an aggregate purchase price of approximately
$630,000.
The above securities were offered and sold
in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D ("Regulation
D") promulgated under the Securities Act.  The Company made this determination based on the representations of
the investors which included, in pertinent part, that each such investor was an "accredited investor" within the meaning
of Rule 501 of Regulation D and upon such further representations from each investor that (i) such investor is acquiring the securities
for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment
or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investor agrees not to sell or
otherwise transfer the purchased securities or shares underlying such securities unless they are registered under the Securities
Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investor
has knowledge and experience in financial and business matters such that such investor is capable of evaluating the merits and
risks of an investment in us, (iv) such investor  had access to all of the Company's documents, records, and books
pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions
of the Offering and to obtain any additional information which the Company possessed or was able to acquire without unreasonable
effort and expense, and (v) such investor has no need for the liquidity in its investment in us and could afford the complete loss
of such investment. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation
D.
61
On November 8, 2011, we completed the Securities
Exchange whereby we acquired all of the issued and outstanding membership interests of LY Retail-Texas in exchange for 30,349,998
shares of our common stock which shares constituted approximately 52.43% of our issued and outstanding shares of common stock as
of and immediately after the consummation of the Securities Exchange.
The shares of common stock issued to the
former members of Luxeyard in connection with the Securities Exchange were offered and sold in a private transaction in reliance
upon exemptions from registration pursuant to Section 4(2) of the Securities Act.  Our reliance on Section 4(2) of the
Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by
us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous
public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations
for the sale of the stock took place directly between the offerees and us.
Item 16. Exhibits.
See Exhibit Index following the signature
page.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any prospectus
required by section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
iii. To include any material information
with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means
of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) Insofar as indemnification for
liabilities arising under the Securities Act of 1933 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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the 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 Act and will be governed by the final
adjudication of such issue.
62
(5) Each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.
63
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,
thereonto duly authorized, in the City of Los Angeles, State of California, on June 15, 2012.
LUXEYARD
By:
/s/ Braden Richter
Braden Richter
President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Margot Ritcher
Margot Ritcher
Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY
THESE PRESENTS, that each person whose signature appears below constitutes and appoints Braden Richter, Margot Richter and Amir
Mireskandari, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the same offering covered by the registration statement
that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done or 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
Capacity
Date
/s/ Braden Richter
President, Chief Executive Officer and Director
June 15, 2012
Braden Richter
(Principal Executive Officer) and Director
/s/ Margot Ritcher
Chief Financial Officer and Secretary
June 15, 2012
Margot Ritcher
(Principal Financial Officer)
/s/Amir Mireskandari
Director (Chairman)
June 15, 2012
Amir Mireskandari
64
EXHIBIT INDEX
Exhibit
Number
Description
2.1
Securities Exchange Agreement, dated November 8, 2011, by and among the Company, Omri Amos Shalom, Ankiva Bergman, LY Retail, LLC, Amir Mireskandari and Khaled Alattar (3)
3.1
Articles of Incorporation (1)
3.2
Bylaws (1)
3.3
Certificate of Amendment to Articles of Incorporation (5)
3.4
Certificate of Amendment to Articles of Incorporation, dated May 2, 2012 (8)
3.5
Certificate of Designation - 8% Convertible Perpetual Preferred Stock (9)
5.1
Opinion of Anslow & Jaclin, LLP **
10.1
Contribution and Assumption Agreement, dated November 8, 2011, by and between the Company and TGRE SubCo, LLC (3)
10.2
Agreement of Sale, dated November 8, 2011, by and among the Company, Omri Amos Shalom and Ankiva Bergman (2)
10.3
Subscription Agreement dated November 8, 2011 (3)
10.4
Form of Series A Warrant dated November 8, 2011 (3)
10.5
Form of Series B Warrant dated November 8, 2011 (3)
10.6
Registration Rights Agreement dated November 8, 2011 (3)
10.7
(a)
Lock Up Agreement with Braden Richter dated November 8, 2011 (3)
(b)
Lock Up Agreement with Kevin Walker dated November 8, 2011 (3)
(c)
Lock Up Agreement with Joshua Thompson dated November 8, 2011 (3)
(d)
Lock Up Agreement with Jerry Wilkerson dated November 8, 2011 (3)
(e)
Lock Up Agreement with Khaled Alattar dated November 8, 2011 (3)
10.8
Lock Up/Leak Out Agreement with Amir Mireskandari dated November 8, 2011 (3)
10.9
Subscription Agreement dated December 15, 2011 (4)
10.10
Form of Series A Warrant dated December 15, 2011 (4)
10.11
Form of Series B Warrant dated December 15, 2011 (4)
10.12
Registration Rights Agreement dated December 15, 2011 (4)
10.13
Employment Agreement with Braden Richter, dated November 8, 2011. (5)
10.14
Employment Agreement with Steve Beauregard, dated November 8, 2011. (5)
10.15
Employment Agreement with Jerry Wilkerson, dated November 8, 2011. (5)
10.16
Employment Agreement with Joshua Thompson, dated November 8, 2011. (5)
10.17
Employment Agreement with Christian Vega, dated February 27, 2012. (6)
10.18
Employment Agreement with Tony Winders, dated March 12, 2012. (6)
10.19
Severance Agreement with Kevin Walker, dated December 20, 2011. (5)
10.20
Luxeyard, Inc. 2012 Stock Option Plan. (5)
10.21
Asset Purchase Agreement, dated February 22, 2012, by and between LY Retail, LLC and eOpulence, LLC. (6)
10.22
Form of Debenture Purchase Agreement (7)
10.23
Form of 10% Convertible Debenture (7)
10.24
Securities Purchase Agreement dated May 24, 2012 (9)
10.25
Form of Series C Warrant (9)
10.26
Form of Series D Warrant (9)
10.27
Form of Series E Warrant (9)
10.28
Registration Rights Agreement dated May 24, 2012 (9)
10.29
Form of Placement Agent Warrant (9)
14.1
Code of Ethics (2)
21.1
List of Subsidiaries (6)
23.1
Consent of MaloneBailey, LLP *
23.2
Consent of Anslow & Jaclin, LLP (included in Exhibit 5.1)
101
Interactive Data File [incorporated by reference to Exhibit 101 filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2011 filed on April 16, 2012 and Quarterly Report on Form 10-Q for the period ended March 31, 2012 filed on May 15, 2012 with the SEC]
65
* Filed herewith.
(1) Incorporated by reference to the Company's
Registration Statement on Form S-1 filed with the SEC on July 12, 2010.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-1 filed with the SEC on January 18, 2011.
(3) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on November 15, 2011.
(4) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on December 21, 2011.
(5) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on March 2, 2012.(6) Incorporated by reference to the Company's Annual Report on Form
10-K filed with the SEC on April 16, 2012.
(7) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on April 27, 2012.
(8) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on May 4, 2012.
(9) Incorporated by reference to the Company's Current
Report on Form 8-K filed with the SEC on May 25, 2012.
** To be filed by amendment.
66
Luxeyard, Inc.
CONSOLIDATED BALANCE SHEETS
Unaudited
March
    31, 2012
December
    31, 2011
ASSETS
Current
    Assets:
Cash
$
204,153
$
154,400
Restricted
    cash
-
150,000
Accounts
    receivable
-
600
Inventory
49,763
5,466
Prepaid
    expenses and other current assets
31,410
16,376
Total
    current assets
285,326
326,842
Property
    and equipment, net of accumulated depreciation of $12,650 and $695
as of March
    31, 2012 and December 31, 2011, respectively
177,220
16,869
Deposits
84,085
-
TOTAL
    ASSETS
$
546,631
$
343,711
LIABILITIES
    AND STOCKHOLDERS' DEFICIT
Current
    Liabilities:
Accounts
    payable
$
216,155
$
63,426
Accrued
    liabilities
124,364
158,206
Deferred
    revenue
-
9,701
Total
current liabilities
340,519
231,333
Derivative
    liabilities
7,936,333
158,758
Convertible
    debentures, net of debt discount of $1,426,682 as of March 31, 2012
543,318
-
Total
liabilities
8,820,170
390,091
Commitments
    and contingencies
-
-
Stockholders'
    Deficit:
Common
    stock, $0.0001 par value.100,000,000 authorized shares; 63,290,000 issued and outstanding shares
6,329
6,329
Additional
    paid in capital
1,281,236
985,738
Accumulated
    deficit
(9,561,104
)
(1,038,447
)
Total
    Stockholders'  Deficit
(8,273,539
)
(46,380
)
TOTAL
    LIABILITIES AND STOCKHOLDERS'  DEFICIT
$
546,631
$
343,711
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-
2
Luxeyard, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited
For  The Three
Months Ended
March 31, 2012
REVENUE
Total Revenue
$
155,089
COST OF GOODS SOLD
Cost of Sales
211,778
GROSS LOSS
(56,689
)
OPERATING EXPENSES
Selling, general and administrative
1,864,563
Impairment loss
192,753
Stock compensation expense
35,201
Depreciation
11,955
Total Operating Expenses
2,104,472
Operating Loss
(2,161,161
)
Other Expenses
Derivative loss
6,294,694
Interest expense
66,802
NET LOSS
$
(8,522,657
)
Basic and Diluted Loss Per Share
$
(0.13
)
Weighted Average Outstanding Shares
63,290,000
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-
3
Luxeyard, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
For
    Three
Months Ended
March 31, 2012
Cash
flows from operating activities
Net 
loss
$
(8,522,657
)
Adjustments
to reconcile net loss to net cash used in operating activities
Depreciation
11,955
Stock
compensations expense
35,201
Impairment
loss
192,753
Amortization
of debt dsicount
56,199
Derivative
loss
6,294,694
Changes
in operating assets and liabilities
Accounts
receivable
600
Inventory
(44,297
)
Prepaid
expenses and other current assets
(15,034
)
Deposits
(84,085
)
Accounts
payable
152,729
Accrued
liabilities
(33,842
)
Deferred
revenue
(9,701
)
Net
cash used in operating activities
(1,965,485
)
Cash
flows from investing activities
Restricted
cash
150,000
Purchase
of equipment and leasehold improvements
(104,762
)
Net
cash provided by investing activities
45,238
Cash
flows from financing activities
Proceeds
from debt
1,970,000
Net
cash provided by financing activities
1,970,000
Net
increase in cash and cash equivalents
49,753
Cash
and cash equivalents at beginning of period
154,400
Cash
and cash equivalents at end of period
$
204,153
Supplemental
disclosures of cash flow information
Cash
paid for interest
$
-
Cash
paid for income taxes
-
Non
cash investing and financing activities
Debt
discount on convertible debentures
$
1,482,881
Acquisition
    of fixed assets through issuance of stock
option
67,544
The accompanying notes are an integral
part of these unaudited consolidated financial statements.
F-
4
LUXEYARD INC.
MARCH 31, 2012
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation and Going Concern
Basis of Presentation
Luxeyard Inc., (the "Company",
"we" or "our"), a Delaware Corporation, is an internet company selling luxury goods on a flash web site.
Luxeyard, Inc. is the parent company of the wholly owned subsidiaries, LY Retail, LLC ("LY Retail Texas"), incorporated
under the laws of the State of Texas on April 20, 2011 and LY Retail, LLC ("LY Retail") incorporated in the State of
California on November 8, 2011.
We have prepared the accompanying consolidated
financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for
interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments,
consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating
results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of
the results that may be expected for 2012 due to seasonal and other factors. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP")
have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and accompanying notes of our 2011 Annual Report on Form 10-K.
Going Concern
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate
continuation of the Company as a going concern. For the three months ended March 31, 2012, the Company has incurred operating losses
and negative operating cash flows which raise doubt on its ability to continue as a going concern. The continuation of the Company
as a going concern is dependent upon the ability of the Company to obtain necessary equity financing to continue operations, and
the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and these
financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
F-
5
2.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include
the accounts of Luxeyard, Inc. and its wholly-owned subsidiaries, LY Retail Texas and LY Retail. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The financial statements are prepared on
the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of March 31, 2012 and December 31, 2011, and expenses for the three months ended March 31, 2012. Actual
results could differ from those estimates made by management.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in
first-out ("FIFO") method, and are valued at the lower of cost or market value. This valuation requires us to make
judgements, based on currently-available information about likely method of disposition, such as through sales to individual customers,
returns to product vendors, or liquidations, and expected recoverable values of each disposition category.
Loss per Common Share
Basic loss per share is computed by dividing
the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during
the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding if potential common shares had been issued and
if the additional common shares were dilutive. Basic and diluted earnings per share for the three months ended March 31, 2012 are
the same as any incremental common stock equivalent would be anti-dilutive.
Fair Value of Financial Instruments
Financial instruments are recorded at fair
value in accordance with the standard for "Fair Value Measurements codified within ASC 820." Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to
valuation methodologies used to measure fair value:
Level 1
—Valuations based on
quoted prices for identical assets and liabilities in active markets.
Level 2
—Valuations based on
observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3
—Valuations based on
unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment.
F-
6
The following table presents the derivative
financial instruments, the Company's only financial liabilities measured and recorded at fair value on the Company's
consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of March 31, 2012 and December
31, 2011:
March 31, 2012
Level 1
Level 2
Level 3
Warrants
$
3,659,458
$
-
$
-
$
3,659,458
Embedded conversion options
4,276,875
-
-
4,276,875
Total
$
7,936,333
$
-
$
-
$
7,936,333
December 31, 2011
Level 1
Level 2
Level 3
Warrants
$
158,758
$
-
$
-
$
158,758
Embedded conversion options
-
-
-
-
Total
$
158,758
$
-
$
-
$
158,758
The following table provides a summary
of the changes in fair value, including net transfers in an/or out, of the derivative financial instruments, measured at fair value
on a recurring basis using significant unobservable inputs:
Balance at December 31, 2011
$
158,758
Fair value of embedded conversion derivative liability at issuance charged
    to debt discount
1,482,881
Unrealized derivative losses included in other expense
6,294,694
Balance at March 31, 2012
$
7,936,333
The fair value of the derivative liabilities
are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the
fair value of the derivative liabilities are recorded in other expense in the consolidated statement of operations. The derivatives
related to the embedded conversion options (see Note 5) were valued using the Black-Scholes pricing model on the issuance date
with the following assumptions:
Risk-free interest rate - 0.22%
to 0.41%
Stock Price - $0.12 to $0.80
Dividend yield - 0%
Volatility factor - 274% to 420%
Expected life (years) –
1.86 to 2 years
At March 31, 2012, the derivatives related
to the warrants and the embedded converstion options were valued using the Black-Scholes pricing model with the following assumptions:
Risk-free interest rate - 0.33%
Stock Price - $0.68
Dividend yield - 0%
Volatility factor - 272% to 389%
Expected life (years) –
1.84 to 4.71 years
F-
7
Share-Based
Payments
The Company
accounts for share-based awards to employees in accordance with FASB ASC 718 "
Stock Compensation"
.
Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.
Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein
such awards are expensed over the period
in which the related services are rendered at their fair value.
Reclassifications
Certain accounts in the prior year have
been reclassified to conform to the current year financial statement presentation.
Recent Accounting Pronouncements
We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
3.
Asset Purchase
On February 22, 2012 we acquired
certain office equipment and other related assets of eOpulence, LLC for a total purchase price of $260,297 equivalent to the
fair value of 300,000 common stock options. These options have an exercise price of $0.30 per share and will expire on
November 30, 2021. The fair value was calculated using the Black Scholes pricing model using the following assumptions:
Risk-free interest rate - 2.7%
Stock price - $0.90
Dividend yield - 0%
Volatility factor - 216%
Expected life (years) - 3.0 years
We recognized an impairment loss
related to the assets acquired of $192,753 for the three months ended March 31, 2012, because the fair market value of the
acquired assets was less than the consideration paid.
4.   Related Party Transactions
The Company's CEO and Director is related
to the sublessor of our subleased office and warehouse space in Los Angeles, California.  Payments on the sub-lease were $28,690 for the three months ended March 31, 2012.
Steve Beauregard, our COO is the founder
and a majority stockholder in Regard Solutions, Inc., ("Regard"). We have an agreement with Regard for Technical Services
and Project Management. The Company incurred expenses of $163,275 from Regard for the three months ended March 31, 2012.
F-
8
5. Convertible Debentures
During
the three months ended March 31, 2011, the Company issued and sold 10% Convertible Debentures amounting to $1,970,00. These debentures
are convertible to the Company's common stock at $0.30 per share and mature on January 31, 2014.
The
related debenture agreement also provides for a mandatory conversion anytime prior to the maturity date if all of the following
criteria are met: a) the common shares underlying the debentures are registered in a registration statement under the Securities
Act or are available for resale pursuant to Rule 144; b) the Company's share prices for a period of 10 consecutive days remain
at or above $1 and c) the daily volume of the Company's stock during such consecutive 10 day period is at least 50,000.
The Company evaluated the terms of the
debentures under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 815-15 and the determined
that the embedded conversion option of the debentures require derivative accounting treatment due to reset provisions in the conversion
price. The fair value of the embedded conversion option amounted to $2,840,420 of which $1,482,881was recognized as a debt discount
to debentures and the difference of $1,357,539 being recognized as a "day 1" derivative loss. The debt discount is
accreted to interest expense over the term of the debentures. Amortization expense for the three months ended March 31, 2012 amounted
to $56,199.
6. Options and Warrants
Stock options
During the three months
ended March 31, 2012, the Company granted 2,015,815 options to employees and consultants with exercise prices ranging from $0.30
to $0.80 per share and a term of 10 years. Of the total options granted, 74,815 options vested immediately and the balance of 1,941,000
vest over a period of 36 months. No options are exercisable until the expiration of the Lock-Up agreement on November 15, 2012.
The options were valued using the Black-Scholes-pricing
model. Significant assumptions used in the valuation include the following:
Risk-free interest rate - 0.71%
to 2.23 %
Stock price - $0.03 to $0.80
Dividend yield - 0%
Volatility factor - 389% to 412%
Expected life (years) - 5.84
to 10 years
During the three months ended March 31,
2012, stock compensation expense recognized under amounted to $35,201 and the unamortized stock compensation expense as of March
31, 2012 was $682,485.
F-
9
Number of
options
Weighted average exercise price
Weighted average remaining contractual life (years)
Intrinsic value
Outstanding at December 31, 2011
8,876,546
$
0.21
9.77
$
-
Granted
2,315,815
0.40
9.82
Exercised
-
-
-
Forfeited/cancelled
-
-
-
Outstanding at March 31, 2012
11,192,361
$
0.25
9.58
4,867,161
Exercisable at March 31, 2012
3,980,389
$
0.22
9.55
1,845,483
Warrants
The following is a summary
of warrant transactions for three months ended March 31, 2012:
Number of
warrants
Weighted average exercise price
Weighted average remaining contractual life (years)
Intrinsic value
Outstanding at December 31, 2011
5,400,000
$
0.45
4.86
$
-
Granted
-
-
-
Exercised
-
-
-
Forfeited/cancelled
-
-
-
Outstanding at March 31, 2012
5,400,000
$
0.45
4.65
1,242,000
Exercisable at March 31, 2012
5,400,000
$
0.45
4.65
1,242,000
7. Commitments and Contingencies
From time to time, the Company is party
to various litigation and administrative proceedings relating to claims arising from its operations in the normal course of business.
Based on the information presently available, management believes that resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition, or cash flows.
8.
Subsequent Events
In
April 2012 the Company raised an additional $945,000 in aggregate 10% Convertible Debentures with the same terms as those disclosed
in Note 5. In connection with the issuance of the debentures, the Company paid commissions to brokers consisting of $63,500 in
cash and 71,666 common shares.
In April 2012, the Company issued 34,090
shares with a fair value of $30,000 to a consultant. The Company also granted 50,000 shares to a marketing consultant which will
vest based on achievement of certain marketing targets.
Effective May 2, 2012, the Company increased
its total number of authorized shares to five hundred fifty million (550,000,000) shares of which five hundred million (500,000,000)
shares shall be common stock, par value $0.0001, and fifty million (50,000,000) shares shall be blank check preferred stock, par
value $0.0001.
In April 2012, the Company granted restricted common shares
in consideration for services as follows:
·
3,365,000 restricted common shares to various consultants
·
187,000 restricted common shares to a director
·
300,000 restricted common shares to the Chief Executive Officer for consulting services and
·
50,000 restricted common shares to Regard, Inc., a related party for placing an employee.
On April 30, 2012 the Company entered into a
consulting agreement with FireRock Capital Inc. for certain business advisory services for a period of one year. The Company
agreed to pay 500,000 restricted common shares upon execution of the agreement and 166,000 restricted common shares on a
quarterly basis. In addition the Company agreed to pay certain incentive fees up to $1,000,000 in common shares at market
price, for certain revenue milestones achieved for the Company,  in relation to each strategic business venture
introduced by FireRock Capital, Inc.
On various dates in April through June 2012, a total of
654,483 shares were issued from the conversion of convertible debentures to equity.
In May 2012 the Company's subsidiary, LY Retail, LLC,
entered into an operating agreement with Jaxon International, LLC (Jaxon) to manage its operations. LY Retail will pay Jaxon $40,500
per month to cover operating expenses. As consideration for the management agreement LY Retail is entitled to all of the sales
profits of Jaxon. Jaxon is owned by a party related to the Chief Executive Officer.
On various dates in May 2012, the Company entered into two bridge notes totaling to $225,000. These notes are due on demand and
bear annual interest of 7%. These notes were subsequently converted into 642,857 units related to the May 2012 offering indicated
below.
On May 25, 2012 the Company entered into a bridge note with
a third party for $300,000. Interest on the note is $15,000 and the note was paid in June 2012. Additionally, the Company issued
50,000 warrants with the note with an exercise price of $0.50 per share. In connection with this note, the Company paid to the
broker, a 7% commission and 200,000 warrants with an exercise price of $0.50 per share.
On May 22, 2012 the Company entered into a bridge note with
a third party for $200,000. The note and the related interest of $10,000 was repaid in June 2012. In connection with the note,
the Company paid loan origination fees of $10,000 and also issued 380,000 warrants with a term of 5 years and an exercise price
of $0.50 per share.
On May 31, 2012, the Company completed the sale of units pursuant
to a Securities Purchase Agreement dated May 24, 2012, between the Company and certain investors. The total units sold by the Company
consisted of (i) 8,904,287 shares of the Company's 8% convertible preferred stock; (ii) Series C warrants to purchase 8,904,287
shares of the Company's common stock which have a five-year term and an initial per share exercise price of $0.50; (iii) Series
D warrants to purchase up to 4,452,144 shares of common stock which have a 90 day term and a per share exercise price of $0.35;
and (iv) Series E warrants to purchase up to 4,452,144 shares of common stock which have a five-year term and per share exercise
price of $0.50. These units were sold for $0.35 per unit resulting in gross proceeds of $3,116,500. The sale included $225,000
from investors that converted existing debt into the offering. In connection with this offering, the Company paid fees to its placement
agent consisting of a) cash fees equivalent to 8% of the gross proceeds; b) 5-year warrants equivalent to 8% of the units sold
and c) 300,000 restricted shares.
F-
10
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
Luxeyard, Inc.
Los Angeles, CA
We have audited the accompanying consolidated balance sheet
of Luxeyard, Inc. and its subsidiaries (collectively the "Company") as of December 31, 2011 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the period from April 20, 2011 (inception) to December
31, 2011. 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 audit.
We conducted our audit in accordance with 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 misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit
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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Luxeyard, Inc. and its subsidiaries as of December
31, 2011 and the results of their operations and their cash flows for the period from April 20, 2011 (inception) to December
31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements,
the Company incurred operating losses and negative operating cash flows which raise substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
April 16, 2012
F-
11
Luxeyard, Inc.
CONSOLIDATED BALANCE SHEET
December 31,
2011
ASSETS
Cash
$
154,400
Restricted cash
150,000
Accounts receivable
600
Inventory
5,466
Prepaid expense
16,376
Total Current Assets
326,842
Property and equipment, net
16,869
TOTAL ASSETS
$
343,711
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable
$
63,426
Accrued liabilities
158,206
Deferred revenue
9,701
Derivative liability
158,758
Total Liabilities
390,091
Commitments and contingencies
-
Stockholders' Deficit:
Common stock, $0.0001 par value.100,000,000 authorized shares; 63,290,000 issued and outstanding shares at December 31, 2011
6,329
Additional paid in capital
985,738
Accumulated deficit
(1,038,447
)
Total Stockholders'  Deficit
(46,380
)
TOTAL LIABILITIES AND STOCKHOLDERS'  DEFICIT
$
343,711
The accompanying notes are an integral part
of these consolidated financial statements.
F-
12
Luxeyard, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period
From April 20,
2011 (Inception)
To December 31,
2011
REVENUE
Total Revenue
$
2,038
COST OF GOODS SOLD
Cost of Sales
2,322
GROSS LOSS
(284
)
OPERATING EXPENSES
Selling, general and administrative
953,143
Stock compensation expense
84,325
Depreciation
695
Total Operating Expenses
1,038,163
NET LOSS
$
1,038,447
Basic and Diluted Loss Per Share
$
(0.08
)
Weighted Average Outstanding Shares
12,827,921
The accompanying notes are an integral part
of these consolidated financial statements.
F-
13
Luxeyard, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
DEFICIT
For the Period From April 20, 2011 (Inception)
To December 31, 2011
Additional
Total
Common
    Stock
Paid-In
Retained
Stockholders
Shares
Amount
Capital
Earnings
Deficit
Balance April 20, 2011
-
$
-
$
-
$
-
$
-
Common stock issued to original Top Gear stockholders
27,540,000
2,754
(2,754
)
-
-
Common stock issued in recapitalization
30,350,000
3,035
(3,035
)
-
-
Common stock issued for cash, net of issuance costs
4,312,500
431
848,569
-
849,000
Conversion of related party bridge notes into common stock
575,000
58
114,943
-
115,000
Conversion of third party bridge notes into common stock
512,500
51
102,449
-
102,500
Derivative liability related to warrants
-
-
(158,758
)
-
(158,758
)
Stock compensation expense
-
-
84,325
-
84,325
Net loss
-
-
-
(1,038,447
)
(1,038,447
)
Balance December 31, 2011
63,290,000
$
6,329
$
985,738
$
(1,038,447
)
$
(46,380
)
The accompanying notes are an integral part
of these consolidated financial statements.
F-
14
Luxeyard, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Period
From April 20,
2011 (Inception)
To December 31,
2011
Cash flows from operating activities
Net loss
$
(1,038,447
)
Adjustments to reconcile net income to net cash used in operating activities
Depreciation
695
Stock compensations expense
84,325
Changes in operating assets and liabilities
Accounts receivable
(600
)
Inventory
(5,466
)
Prepaids
(16,376
)
Accounts payable
63,426
Accrued liabilities
188,962
Deferred revenue
9,701
Net cash used in operating activities
(713,780
)
Cash flows from investing activities
Purchase of equipment and leasehold improvements
(17,564
)
Net cash used in investing activities
(17,564
)
Cash flows from financing activities
Proceeds from debt
280,000
Proceeds from sale of common stock
605,744
Net cash provided by financing activities
885,744
Net decrease in cash and cash equivalents
154,400
Cash and cash equivalents at beginning of period
-
Cash and cash equivalents at end of period
$
154,400
Supplemental disclosures of cash flow information
Cash paid for interest
$
-
Cash paid for income taxes
-
Non cash financing activities
Conversion of bridge notes into common stock
$
217,500
Derivative liability related to warrants
158,758
Common stock issued to original TIGR stockholders and recapitalization
5,789
Bridge notes settled directly from proceeds from sale of common stock
62,500
The accompanying notes are an integral part
of these consolidated financial statements.
F-
15
LUXEYARD INC.
DECEMBER 31, 2011
NOTES TO FINANCIAL STATEMENTS
1.
B
asis of Presentation and Nature of Operations
Basis of Presentation
Luxeyard Inc., (the "Company",
"we" or "our"), a Delaware Corporation, is an internet company selling luxury goods on a flash web site.
Luxeyard, Inc. is the parent company of the wholly owned subsidiaries, LY Retail, LLC ("LY Retail Texas"), incorporated
under the laws of the State of Texas on April 20, 2011 and LY Retail, LLC ("LY Retail") incorporated in the State of
California on November 8, 2011. The Company has adopted a fiscal year end of December 31.
Nature of Operations
On November 8, 2011, Top Gear Inc., a Delaware
corporation ("Top Gear") acquired all of the membership units of LY Retail Texas on April 20, 2011. LY Retail Texas
exchanged all of its membership for the issuance of 1,785,294 shares (30,350,000 shares post-split) of Top Gear's common
stock pursuant to a Securities Exchange Agreement between LY Retail Texas, LY Retail Texas's former members, Top Gear and
the former principal stockholders of Top Gear.  As a result of this transaction, LY Retail Texas became a wholly-owned
subsidiary of Top Gear and its former members became the controlling stockholders of Top Gear.  The transaction was accounted
for as a reverse merger and recapitalization of Top Gear affected by a securities exchange, wherein LY Retail Texas is considered
the acquirer for accounting and financial reporting purposes.
Immediately prior to the securities exchange,
Top Gear contributed substantially all of its assets and liabilities to a subsidiary and then spun out the subsidiary to its former
controlling stockholders in exchange for the cancellation of a total of 7,000,000 shares (pre-split) of our common stock previously
held by them.
Concurrently with this transaction, LY
Retail was incorporated in the State of California as a wholly owned subsidiary of the Company on November 8, 2011 and all of the
operating activity of the Company was transferred to LY Retail and LY Retail Texas ceased all activity. At year end LY Retail and
LY Retail Texas are wholly owned subsidiaries of Top Gear.
On January 9, 2012, Top Gear filed a Certificate
of Amendment to our Articles of Incorporation to change the corporate name from "Top Gear, Inc." to "Luxeyard,
Inc." The amendment was effective as of January 9, 2012. The name change was declared effective by Financial Industry Regulatory
Authority, or FINRA, as of February 13, 2012.
Going Concern
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate
continuation of the Company as a going concern. For the period ended December 31, 2011, the Company has incurred operating losses
and negative operating cash flows which raise doubt on its ability to continue as a going concern. The continuation of the Company
as a going concern is dependent upon  the ability of the Company to obtain necessary equity financing to continue operations,
and the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and
these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
F-
16
2.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include
the accounts of Luxeyard, Inc. and its wholly-owned subsidiaries, LY Retail Texas and LY Retail. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The financial statements are prepared on
the basis of accounting principles generally accepted in the United States. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of December 31, 2011, and expenses for the period ended December 31, 2011, and cumulative from inception.
Actual results could differ from those estimates made by management.
Cash and Cash Equivalents
For purposes of reporting within the statement
of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all
highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Restricted Cash
Restricted cash represents proceeds from the sale of the Company's
common stock which is held in escrow as of December 31, 2011. These were released to the Company on February 10, 2012.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's accounts receivable
are derived from amounts due from the credit card company that processes the credit card transactions from customers. Since accounts
are settled daily, the balance represents one day's sales.
The Company records an allowance for
uncollectible accounts which reduces the stated value of receivables on the balance sheet. This allowance is calculated based on
a historical estimate. The allowance for uncollectible accounts at December 31, 2011 was $0.
Property and Equipment
Property and equipment
are recorded at cost. Depreciation and amortization are provided using the straight-line method over their estimated useful lives,
generally three to seven years. Leasehold improvements are amortized over their estimated useful economic lives or the term of
the lease, whichever is shorter. Management periodically evaluates economic lives in order to determine recoverability in light
of current technological conditions and expected cash flows. Maintenance and repairs are charged to operating expenses as incurred.
Revenue Recognition
We recognize revenue from product sales
when the following four criteria are met: pervasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the selling price is fixed or determinable, and collectability is reasonably assured.
Product sales represent revenue from the
sale of products and related shipping fees where we are the seller of record. Product sales and shipping revenues, net of promotional
discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail sales
to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery
to the carrier.
We record and report revenue on the gross
amount billed to customers when the following indicators are met:
·
we are the primary obligor in the transaction
·
we are subject to inventory risk and credit risk for amount billed to the customer
·
we have latitude in establishing prices and selecting suppliers
F-
17
Deferred Revenue
Deferred revenue represents all payments
received from customers in excess of revenue earned based on money received for products that have not shipped.
Cost of Sales
Cost of sales consists primarily of direct
costs associated with the goods and services the Company provides. Shipping and handling costs billed to customers are included
in revenues. Shipping and handling costs are reported as a component of cost of sales.
Sales and Marketing
Sales and marketing costs consist primarily
of payroll and related expenses for personnel engaged in marketing, customer service and sales functions, advertising and promotional
expenditures and payments made to agencies for emails and other marketing activities and advertising expense.
Advertising and other promotional costs,
are expensed as incurred,
Loss per Common Share
Basic loss per share is computed by dividing
the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during
the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding if potential common shares had been issued and
if the additional common shares were dilutive. Basic and diluted earnings per share for the period ended December 31, 2011 are
the same as any incremental common stock equivalent would be anti-dilutive.
Income Taxes
The Company accounts for income taxes pursuant
to FASB ASC 740. Deferred tax assets and liabilities are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified
according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance
with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing
the deferred tax asset and taking into consideration the Company's financial position and results of operations for the current
period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward
period under the Federal tax laws.
Changes in circumstances, such as the Company
generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change
in the valuation allowance will be included in income in the year of the change in estimate.
The Company also accounts for uncertain
tax positions in accordance with ASC 740 which addresses how we should recognize, measure and present in our financial statements
uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, the Company
can recognize a tax benefit only if it is "more likely than not" that a particular tax position will be sustained upon
examination or audit. To the extent the "more likely than not" standard has been satisfied, the benefit associated
with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. No liability
for unrecognized tax benefits was recorded as of December 31, 2011.
F-
18
Fair Value of Financial Instruments
Financial instruments are recorded at fair
value in accordance with the standard for "Fair Value Measurements codified within ASC 820." Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to
valuation methodologies used to measure fair value:
Level 1
—Valuations based on
quoted prices for identical assets and liabilities in active markets.
Level 2
—Valuations based on
observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3
—Valuations based on
unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment. Our derivative liabilities are classified as level 3.
Level 1
Level 2
Level 3
Derivative liability - warrants
$
-
$
-
$
158,758
Total
$
-
$
-
$
158,758
The fair value of the warrant liabilities
at inception and at December 31, 2011 was approximately $158,000, accordingly, we did not recognize any derivative gain or loss
when the instruments were marked to market at year-end.
Share-Based
Payments
The
Company accounts for share-based awards to employees in accordance with FASB ASC 718 "
Stock Compensation"
.
Under
this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting period). The Company estimates the fair value of
share-based payments using the Black-Scholes option-pricing model.
Share-based
awards to non-employees are accounted for in accordance with ASC 505-50, wherein
such awards are expensed over the period
in which the related services are rendered at their fair value.
Recent Accounting Pronouncements
We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
3.  Merger
On November 8, 2011, the Company entered
into a series of transactions pursuant to which it acquired LY Retail Texas, spun-out the Company's prior operations from
the Company's former principal stockholders, directors and officers, and completed a private offering of its securities.
  The following summarizes the foregoing transactions:
F-
19
Acquisition of
.   The
Company acquired all of the membership interests of LY Retail Texas in exchange for the issuance of 30,350,000 shares of
the Company's common stock pursuant to a Securities Exchange Agreement between the Company, its former principal stockholders,
LY Retail Texas and the former members of LY Retail Texas.  As a result of this transaction, LY Retail Texas became
our wholly owned subsidiary and the former members of LY Retail Texas became our controlling stockholders.  The transaction
was accounted for as reverse merger and a recapitalization effected by a securities exchange, wherein LY Retail Texas is considered
the acquirer for accounting and financial reporting purposes.
Reorganization and Spin-Out
of Top Gear Business.
Immediately prior to the acquisition of LY Retail Texas, the Company contributed substantially
all of our assets to SpinCo, and, in exchange, SpinCo assumed all of the Company's liabilities.  In addition,
the Company transferred all of its ownership interest in SpinCo to Shalom and Bergman in exchange for the cancellation of a total
of 119,000,000 shares of the Company's common stock previously held by Shalom and Bergman.
Financing Transactions.
Immediately following the acquisition of LY Retail Texas, the Company completed a private offering of units consisting
of an aggregate of (i) 3,150,012 shares of the Company's common stock, (ii) Series A warrants to purchase 1,575,000 shares
of common stock which have a five-year term and a per share exercise price of $ 0.30, and (iii) Series B warrants to purchase
1,575,000 shares of common stock which have a five-year term and a per share exercise price of $ 0.60.   The aggregate
purchase price of the units was approximately $630,000.
On December 15, 2011, the Company
completed a second private offering of (i) the aggregate number of shares of common stock, $0.0001 par value per share, of the
Company at a per share purchase price of $0.20 in an aggregate of 2,250,000 shares of Common Stock (ii) a five year warrant to
initially acquire up to 1,125,000 of additional shares of Common Stock at an exercise price of $0.30 per share Series A Warrants
(iii) a five year warrant to initially acquire up to 1,125,000 of additional shares of Common Stock at an exercise price of $0.60
per share the "Series B Warrants". The aggregate purchase price of the units was approximately $450,000.
Exchange of Bridge
Notes
.
Certain of the Subscribers (each, a "Bridge Investor" and collectively the "Bridge
Investors") delivered promissory notes issued by LY Retail Texas prior to the securities exchange mentioned above (each,
a "Bridge Note" and collectively the "Bridge Notes") as payment of such Bridge Investor's purchase
price for the units.  To the extent the principal amount of a Bridge Investor's Bridge Note was greater than such
Bridge Investor's purchase price for the units, the Company, on behalf of LY Retail Texas, paid the remaining principal
amount of such Bridge Note from the proceeds of the Offering.  Accordingly, Bridge Notes in the aggregate principal
amount of $217,500 were exchanged for units in the Offering and the Company paid $62,500 of the remaining principal amount of
the Bridge Notes to the Bridge Investors out of the proceeds from the Offering.  As a result, the Bridge Notes are deemed
to be cancelled and are of no further force and effect.
Forward Split.
On February 14, 2012 the Company effectuated a 17:1 forward stock split of its common stock.  The forward split was
retroactively applied resulting in a price per share of $0.20; (ii) an exercise price of the Series A Warrants of $0.30 per share;
and (iii) the exercise price of the Series B Warrants of $0.60 per share.
Registration Rights Agreement
On the Closing Date and in connection
with Offering, we entered into a registration rights agreement (the "Registration Rights Agreement") with the Subscribers
granting the Subscribers piggy-back registration rights with respect to the Shares and the shares of common stock underlying the
Warrants (the "Warrant Shares").
F-
20
Lock-Up Agreements
On the Closing Date and in connection
with Offering, we entered into lock-up agreements (collectively, the "Lock-Up Agreements") with each of Braden Richter,
our newly appointed President and Chief Executive Officer and member of our Board of Directors, Kevin Walker, our newly appointed
Chief Financial Officer, Chief Operating Officer and Secretary, Jerry Wilkerson, our newly appointed Chief Technology and
Information Officer, Joshua Thompson, our newly appointed Chief Marketing Officer, and Khaled Alattar, one of our new principal
stockholders, pursuant to which each of them agreed not to transfer any of our capital stock held directly or indirectly by them
for an eighteen month period following the closing of the Offering.  In addition, we entered into a lock-up agreement  (the
"Lock-Up/Leak-Out Agreement") with Amir Mireskandari, our newly appointed Chairman of our Board of Directors and one
of our new principal stockholders, pursuant to which he agreed not to transfer any of our capital stock held directly or indirectly
by him for a nine month period following the closing of the Offering and for the nine months thereafter to limit any transfers
to 50,000 shares of common stock in any 30 day period and 10,000 shares of common stock on any single day.
Warrants
Warrants associated with the
Round 1 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our
common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.  The Series B
Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an initial per share
exercise price of $0.60, subject to adjustment set forth below.
Warrants associated with the
Round 2 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our
common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.  The Series B
Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our common stock at an initial per share
exercise price of $0.60, subject to adjustment set forth below.
The exercise prices of the Series
A Warrants and Series B Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends,
distributions, reclassifications, mergers or other corporate changes.  In addition, subject to certain exceptions, if
at any time after the respective Closing Dates, the Company issues or sells any shares of its common stock at a price per share
less than the exercise price of the applicable Warrant, then immediately after such new issuance, the exercise price of the applicable
Warrant then in effect shall be reduced to an amount equal to the price per share of such new issuance.  If the Warrants
are not registered with the Securities Act, the Warrants can be exercised on a cashless basis.
Anti-dilution features of the warrants require derivative
accounting. ( See Note 11)
4.  Property and Equipment
Property and equipment consists of the following:
Furniture and fixtures
$
7,928
Equipment
9,636
17,564
Less:  Accumulated depreciation
(695
)
Net carrying value
$
16,869
5.  Accrued Liabilities
Accrued liabilities consist of the following:
Accrued marketing costs
$
100,000
Accrued salary and other expenses
58,206
$
158,206
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21
6.  Income Taxes
The Company's net deferred income tax asset as of December
31, 2011, after applying enacted corporate income tax rates, are as follows:
Net operating loss carry forward
$
333,943
Valuation allowance
(333,943
)
Total
-
As of December 31, 2011, the Company has
unused net operating loss carryforwards of approximately $954,000 which will begin to expire in 2031. The Company provided a full
valuation allowance to the deferred tax asset as of December 31, 2011 because it is not presently known whether future taxable
income will be sufficient to utilize the loss carryforwards.
The Tax Reform Act of 1986 limits the use
of net operating loss and tax credit carry-forwards in certain situations where changes occur in the stock ownership of a company.
In the event the Company has a change in ownership, utilization of the net operating loss carry-forwards could be restricted.
7.   Related Party Transactions
The Company's CEO and Director is related
to the sublessor of the 8884 Venice Blvd. (See Note 12).
Steve Beauregard, our COO is the founder
and a majority stockholder in Regard Solutions, Inc., ("Regard"). We have entered into an agreement with Regard for
Technical Services and Project Management. The Company incurred $90,623 in expense from Regard of which $83,435 was paid as of
December 31, 2011.
Pursuant to the Securities Exchange Agreement,
on November 8, 2011, we issued 30,350,000 common shares to Amir Mireskandari and Khaled Alattar, the former members of LY Retail,
Texas. Immediately following the securities exchange, Mireskandari and Alattar became our principal stockholders. Mr. Mireskandari
was also appointed as the Chairman of our Board of Directors.
Additionally, in connection with our Round
1 and Round 2 Financing, we issued (i) 417,416 shares of our common stock to Mireskandari and 482,584 shares of our common stock
to Alattar; (ii) Series A Warrants exercisable for 208,708 shares of our common stock to Mireskandari and Series A Warrants exercisable
for 241,292 shares of our common stock to Alattar; and (iii) Series B Warrants exercisable for 208,708 shares of our common stock
to Mireskandari and Series B Warrants exercisable for 241,292 shares of our common stock to Alattar. In consideration for the purchase
price for such securities, Mireskandari and Alattar delivered to the Company Bridge Notes in the aggregate principal amount of
$115,000 and cash of $15,000.
Prior to the securities exchange, LY Retail
Texas and Mireskandari and Alattar entered into Bridge Notes in the aggregate principal amount of $115,000. As set forth above,
such Bridge Notes were exchanged for units in the Offering.
8.  Bridge Notes
On various dates in September and October
2011, the Company issued promissory notes in the aggregate principal amount of $280,000 (collectively, the "Bridge Notes")
to certain investors. These notes bear no interest and have an average term of 30 days.
F-
22
As disclosed in Notes 3 and 7, $217,500
of these notes were settled with units issued from the Company's private offering and the balance of $62,500 was paid directly
from proceeds of the private offering. No gain or loss was recognized on the settlement of the Bridge Notes.
9.  Commitments and Contingencies
Operating Leases
On September 26, 2011 the Company entered
into an operating lease for office space in Marina Del Rey California (the "Glencoe" lease). The lease term commenced
October 1, 2011 and ends September 30, 2011. Rent expense for the year 2011 was $39,829.
Minimum Lease Expense
Subsequent to year end, the Company entered
into three leases for office and warehouse space in Los Angeles, California ("Venice" lease); in Brooklyn, New York
("New York" lease) and a Corporate Apartment in New York, New York ("Wall Street" lease). See Subsequent
Events Note. Minimum lease expense is as follows:
Year
Glencoe
Venice
New York
Wall Street
Total
2012
$
43,273
$
105,197
$
43,542
$
16,170
$
208,182
2013
-
114,761
11,458
-
126,219
2014
-
9,563
-
-
9,563
Total
$
43,273
$
229,521
$
55,000
$
16,170
$
343,964
Severance Agreement
In connection with the termination of Kevin
Walker as our executive officer, we entered into a severance agreement with LY Retail and Kevin Walker on December 20, 2011 pursuant
to which we agreed to pay Mr. Walker any unpaid salary, unreimbursed expenses and a severance payment equivalent to three months
of Mr. Walker's base salary. The severance pay is payable in two installments of $13,334 and one installment of $11,688 for
a total amount of $38,352. Mr. Walker was also granted an option to purchase 400,010 shares of common stock at an exercise price
of $0.20 per share.
Marketing Agreements
In November the Company engaged XL Marketing,
Corporation to provide email drops to various target markets and to provide other marketing related series. Marketing expense related
to this contract will be approximately $180,000 per month.
On November 23, 2011 the Company entered
into to a nine month agreement with Placements Media, Inc. ("Placements") to provide marketing consulting services.
The compensation for the performance based component of the contract is $12,000 in December 2011 and January 2012 and $15,000 per
month thereafter. Placements also earns commission based on sliding scale percentages applied on the XL Marketing spend with rates
ranging from 4% to 18%. For the period ended December 31, 2011, Placements earned commissions amounting to $53,557. Additionally,
Placements can earn options of up to 50,000 shares of common stock based on certain membership milestones.
Technology Infrastructure Agreement
In November, 2011, LY Retail entered into
an agreement with Regard Solutions Corporation for project management and technical services for a monthly fee of $35,000 for a
period of two months. This agreement was amended on December 31, 2011 to extend the term to April 30, 2012 for a monthly fee of
$42,531. Technical fees incurred for the period ended December 31, 2011 amounted to $90,623.
Litigation
From time to time, the Company is party
to various litigation and administrative proceedings relating to claims arising from its operations in the normal course of business.
Based on the information presently available, management believes that resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition, or cash flows.
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23
10.  Stock
Option Plan
In September, 2011, the
Company adopted the 2011 Stock Option Plan (the Plan). The Plan provides for the granting of options to purchase shares of common
stock to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options (ISOs)
or non-qualified stock options (NSOs). ISOs may be granted only to Company employees (including officers and directors who may
also be employees). NSOs may be granted to Company employees and consultants. The Company reserved 13,005,000 shares of common
stock for issuance under the Plan as of December 31, 2011, of which 8,876,546 were subject to outstanding options and other
awards and 4,128,454 were available for future grants of share-based awards.
Options under the Plan
may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not
be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, and (ii) the exercise
price of an ISO and NSO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the
date of grant. The Board of Directors determined the value of the underlying stock by considering a number of factors, including
historical and projected results, the risks the Company faced at the time of issuance, the rights of the Company's preferred
securities and the lack of liquidity of the Company's common stock. Options granted under the Plan generally vest ratably
over a 36 month period. It is the Company's policy to grant stock options to employees and nonemployees at exercise prices
equal to the fair value of the underlying stock at the date of the grant.
The following is a summary of stock options
granted, canceled, and outstanding under the plan for the year ended December 31, 2011:
Number of Stock
Options
Exercise
Price
Weighted-
Average
Exercise Price
Weighted
average
remaining
contractual
life (years)
Outstanding at April 1, 2011
-
$
-
$
-
-
Granted
10,426,538
0.20 - 0.30
0.21
9.77
Cancelled
(1,549,992
)
0.20
0.20
-
Exercised
-
-
-
-
Balance at December 31, 2011
8,876,546
$
0.20-0.30
$
0.21
9.77
The following is a summary of stock options vested as of December 31,
2011:
Vested Options
Exercise
Price
Weighted-
Average
Exercise Price
Weighted
average
remaining
contractual
life (years)
December 31, 2011
2,868,143
$
0.20 - 0.30
$
0.20
9.77
No options are exercisable
until the expiration of the Lock-Up agreement on November 8, 2012.
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24
At December 31,
2011, 4,128,454 options remained available for future grants under the Plan. The weighted-average grant date fair value of options
granted during the period ended December 31, 2011 was $ 0.03. Outstanding options as of December 31, 2011 have an intrinsic
value of zero.
The options
were valued using the Black-Scholes-pricing model. Significant assumptions used in the valuation include the following:
Expected term
5.40 - 5.84 years
Expected volatility
415% - 447
%.
Risk free interest rate
0.82% - 2.03
%
Expected dividend yield
0
%
During the period ended
December 31, 2011, stock compensation expense recognized under the plan was $84,325.
As of December 31,
2011 there was $199,679 of unrecognized compensation related to stock options granted, which is expected to be recognized over
a weighted-average period of 2.8 years.
11.  Warrants
Warrants associated with the Round 1 financing
-The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an
initial per share exercise price of $0.30, subject to adjustment as set forth below.  The Series B Warrants have a five-year
term and are exercisable for an aggregate of 1,575,000 shares of our common stock at an initial per share exercise price of $0.60.
At the closing date of November 8, 2011 Series A warrants had a fair market value of $46,304 and Series B warrants had a fair market
value of $46,304. The fair market value of the warrants was computed using the Black-Scholes pricing model with the following assumptions:
Risk-free interest rate 0.92 %
Dividend yield 0%
Volatility factor 429%
Expected life (years) 5 years
On December 15, 2011, warrants associated
with the Round 2 financing -The Series A Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares
of our common stock at an initial per share exercise price of $0.30, subject to adjustment as set forth below.  The Series
B Warrants have a five-year term and are exercisable for an aggregate of 1,125,000 shares of our common stock at an initial per
share exercise price of $0.60. At the closing date of December 15, 2011 Series A warrants had a fair market value of $33,075 and
Series B warrants had a fair market value of $33,075. The fair market value of the warrants was computed using the Black-Scholes
pricing model with the following assumptions:
Risk-free interest rate 0.86%
Dividend yield 0%
Volatility factor 416%
Expected life (years) 5 years
At December 31, 2011,
the warrants had a fair value of $158,758 and this fair value was included in the derivative liability balance. There was no difference
in fair value from the grant date to December 31, 2011. The following assumptions were used in the Black-Sholes option pricing
model at December 31, 2011.
Risk-free interest rate 0.83%
Dividend yield 0%
Volatility factor 412%
Expected life (years) 4.86 years
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25
The weighted average exercise price is
$0.45 for all outstanding warrants. The weighted average remaining contractual term for all warrants outstanding is 4.86 years.
As of December 31, 2011, the outstanding warrants had an intrinsic value of zero.
12.  Subsequent Events
Leases
On January 26, 2012, the Company subleased
approximately 5,313 square feet of office and warehouse space in Los Angeles California from a related party ("Venice"
lease). The lease is a twenty four month operating lease with monthly rent expense of $9,564 per month.
On March 15, 2012, the Company subleased
approximately 5,500 square feet of office and warehouse space in Brooklyn New York in conjunction with the acquisition of eOpulence,
(the "New York" lease). The lease is one year operating lease with option to extend for 3.5 years. The monthly rent
expense is $4,583.33.
On March 22, 2012 the Company
leased a corporate apartment in downtown New York. The lease begins April 3, 2012 and is a six month operating lease with
monthly rent expense of $2,695.
Adoption of 2012 Stock Plan
On February 24,
2012, the Board and majority shareholders of the Company approved the Luxeyard, Inc. 2012 Stock Option Plan (the "Plan").
13,050,000 shares of common stock with authorized under this plan. The Plan is intended to recognize the contributions made to
the Company by its associates (including associates who are members of the Board of Directors), directors, consultants and advisors
of the Company or any Affiliate, to provide such persons with additional incentive to devote themselves to the future success of
the Company or an Affiliate, and to improve the ability of the Company or an Affiliate to attract, retain, and motivate individuals
upon whom the Company's sustained growth and financial success depend, by providing such persons with an opportunity to acquire
or increase their proprietary interest in the Company. To this end, the Plan provides for the grant of stock options. Stock options
granted under the Plan may be Non-Qualified Stock Options or ISOs, as provided herein, except that stock options granted to outside
directors and any consultants or advisers providing services to the Company or an Affiliate shall in all cases be Non-Qualified
Stock Options.
eOpulence Asset Purchase
On February 22, 2012 our subsidiary, LY
Retail, purchased the fixed assets of eOpulence, a New York limited liability Company ("eOpulence") for purchase price
consisting options to purchase 300,000 shares of common stock at an exercise price of $.30 per share. The fair market value of
the stock options at the purchase date was $260,297. The fair value was calculated using the Black Scholes pricing model with
the following assumptions
Risk-free interest rate -2.7%
Dividend yield 0%
Volatility factor 416%
Expected life (years) 3.0 years
Share-based awards
On February 27, 2012, in connection with
his employment agreement, the Company granted 200,000 common stock options to our Chief of Business Development Officer.
On March 12, 2012, in connection with his
employment agreement, the Company granted 250,000 common stock options to our Executive Vice President of Revenue. He will also
be granted an additional 250,000 on attainment of certain milestones.
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26
On February 28, 2012, the Company engaged
a consultant for institutional financial public relations. As compensation, the Company will pay the consultant 30,000 common shares
per month for a period of one year. Additionally the Company will issue a non-cancellable "Option" for up to 4 million
shares of outstanding stock at $.80 per share vesting as soon as practicable, subject to shareholder and/or regulatory approval.
On March 1, 2012 the Company retained a
third party as investor relations counsel. The contract is for a minimum of six months for $5,000 a month plus a one-time grant
on the initiation of the engagement of restricted shares of common stock with a fair market value of $30,000 on the contract start
date. A second grant in the like cash value amount will be granted on the achievement of certain milestones.
Financing
On January 25, 2012, the Company borrowed
cash in the amount $25,000 from one of the Company's shareholders. The loan bears 10 % annual interest and has a maturity
of April 20, 2012.
As of April 16, 2012, we sold an aggregate
of $2,125,000 debentures in the form of convertible notes, which are convertible into 7,083,334 shares of our common stock, with
a conversion price of $0.30 per share, subject to adjustment.
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