Disclosures Regarding Forward-Looking Statements.

The following should be read in conjunction with the condensed consolidated financial statements (unaudited) and the related notes that appear elsewhere in this document as well as in conjunction with the Risk Factors section herein and in our Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 13, 2012. These reports include forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial conditions or state other "forward-looking" information. Those statements include statements regarding the intent, belief or current expectations of Apricus Biosciences, Inc. and its subsidiaries ("we," "us," "our" or the "Company") and our management team. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. There are many factors that affect our business, consolidated financial position, results of operations and cash flows, including but not limited to, our ability to enter into partnering agreements or raise financing on acceptable terms, successful completion of clinical development programs, regulatory review and approval, product development and acceptance, anticipated revenue growth, manufacturing, competition, and/or other factors, many of which are outside our control.

The Company operates in a rapidly changing business, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Corporate History

We are a Nevada corporation and have been in existence since 1987. We have operated in the pharmaceutical industry since 1995, initially focusing primarily on research and development using our proprietary drug delivery technology called NexACT ®. Our pipeline of approved and late-stage NexACT ® based product candidates includes Vitaros ®, which is approved in Canada for the treatment of erectile dysfunction, Femprox ® for female sexual arousal disorder, MycoVaTM for onychomycosis, RayVatmfor Raynaud's Syndrome and PrevOncoTM for liver cancer.

On December 14, 2009, we acquired Bio-Quant, Inc. ("Bio-Quant"), a private, contract research organization ("CRO") in San Diego, California that was focused on providing drug development research services to other companies. On September 10, 2010, the Company changed its name from "NexMed, Inc." to "Apricus Biosciences, Inc." In June 2011, we sold Bio-Quant to BioTox Sciences ("BioTox"), a San Diego-based CRO. In December 2011, we entered into the specialty pharmaceutical business with the acquisition of Topotarget USA, Inc., renamed Apricus Pharmaceuticals USA, Inc. ("Apricus Pharmaceuticals"). We continue to grow our specialty pharmaceutical products business with the addition of the products Totect® in 2011, and Granisol ®, AquoralTMand NitroMisttm in early 2012.

On July12, 2012, the Company closed the Contribution Agreement for acceptance of 100% ownership of Finesco, and its wholly-owned subsidiary Scomedica. Scomedica is a company with approximately eighty pharmaceutical sales representatives that have successfully marketed drugs in France for global pharmaceutical companies like Novartis. The Company does not intend to continue using Scomedica as solely a contract sales force, but intends to also use its French sales force as a base for the Company's commercial operations in Europe, starting with the launch of Vitaros ® if and when approved in Europe for the treatment of ED. The Company believes bringing Finesco and Scomedica into the Company as subsidiaries will enable the Company to bring its own drugs and additional partnered drugs to the key French market to build a meaningful commercial presence in this country.

Growth Strategy

We are a pharmaceutical company focused in the areas of sexual dysfunction, oncology, autoimmune and anti-infectives, among others. Our pipeline is made up of drugs and drug candidates developed internally, as well as, drugs that we acquire or in-license from third parties. In the United States and France, we sell some of our drugs using a specialty sales force, while in selected markets we have partnered with other pharmaceutical companies for commercializing our products in areas where we do not have a sales force.

We transformed from a clinical-stage development company into a pharmaceutical company with our acquisition of Topotarget, the U.S. subsidiary of Topotarget AS, and its drug Totect® (marketed in the U.S. and approved for anthracyclin extravasation) in late December 2011. The acquisition of Topotarget, now named Apricus Pharmaceuticals USA, Inc., provided a foundation for our commercial operations in the United States. We added to our product offerings in early 2012 by acquiring co-promotion rights to Granisol® (marketed in the U.S. and approved as an anti-emeteic following chemotherapy and radiotherapy) and AquoralTM(marketed in the U.S. and approved for management of Xerostomia), as well as ex-North American rights to NitroMisttm(approved in the United States for acute angina). We intend to expand our commercialization activities in the United States and France, and to establish commercial capabilities in selected markets outside the United States and France, with the addition of other products, including outside of the oncology and oncology supportive care markets.

Our strategy for growth is to acquire, in-license or promote marketed drugs that we believe are underperforming commercially, re-launch and commercialize them using our small but growing sales forces in the United States and our large and experienced sales force in France to increase sales and revenues. Over time, we expect that our sales force will be comprised of hospital sales representatives, on-call hospital nurses and a call center. In addition, we have an extensive pre-clinical and late stage clinical NexACT® pipeline that we are actively promoting for partnerships to support the development and commercialization of these drug candidates.

Revenue Sources

License Revenue. The Company entered into three license agreements in the first half of 2012, two for Vitaros®and the other for MycoVaTM. Pursuant to these agreements, the Company recorded approximately $668,494 in license revenue for upfront fees in the first half of 2012. The license fees were recorded net of tax withholdings of approximately $126,000. We will continue to pursue new licenses for Vitaros®, as well as the Company's drug candidates and NexACT® platform technology. The timing for these new agreements is inherently uncertain. Additionally, the timing of milestone payments under existing license agreements is similarly uncertain and can vary significantly from quarter to quarter. Accordingly, although we expect an overall increase in license revenue in future periods, the amount and timing of these increases is unknown at this time.

Product Revenue. The Company generates product revenues from the sale of diagnostic kits through its wholly-owned subsidiary BQ Kits, Inc.

Liquidity, Capital Resources and Financial Condition

We have experienced net losses and negative cash flows from operations each year since our inception. Through June 30, 2012, we had an accumulated deficit of $229.0 million and our operations have principally been financed through public offerings of our Common Stock and other equity instruments, private placements of equity securities, debt financing and up-front license fees received from commercial partners. Funds raised in recent periods, include approximately $18.4 million in net proceeds from our February 2012 follow-on public offering and approximately $1.1 million during 2012 from the sale of Common Stock through our "at-the-market" stock sales facility. These recent transactions should not necessarily be considered an indication of our ability to raise additional funds in any future periods.

Our cash and cash equivalents at June 30, 2012 were approximately $17.9 million. We expect our cash inflows during 2012 will be from licensing and milestone revenues received from commercial partners for our late stage NexACT® product candidates, from product revenues from the sale of our oncology supportive care products sold in the United States and from contract sales revenues realized in France relating to existing third party customers. We expect our most significant expenditures in 2012 will include development expenditures including filing for market authorization for multiple drugs in multiple territories, product re-launches, inventory purchases to support product sales and Vitaros ® manufacturing and for the overall expansion of the commercial operations of the Company.

At December 31, 2012, we are obligated to pay the aggregate principal amount of $4.0 million in convertible notes which mature on that date. The notes are secured by a first priority mortgage on our facility in East Windsor, New Jersey. The facility is currently leased to an unrelated third party and we do not expect to utilize the facility for our research or manufacturing activities for the foreseeable future. If the Company were to sell the facility in 2012, the Company expects that the cash proceeds would be available to pay all or substantially all of the principal amount of the mortgage amount due on December 31, 2012.

Even if we are successful in obtaining additional partners who will support further development of our products, we may still encounter additional obstacles such as our development activities may not be successful, our products may not prove to be safe and effective, clinical development work may not be completed in a timely manner or at all, and the anticipated products may not be commercially viable or successfully marketed. Should we not be able to find development partners in 2012 and not achieve our product sales expectations, we would require additional external financing to fund our operations and we may not achieve our goals of being cash flow positive during 2013. Additionally, our business could require additional financing if we choose to accelerate product development expenditures in advance of receiving up-front payments from development and commercial partners. The timing of receipts of up-front and milestone payments are difficult to estimate and we would seek to obtain additional outside equity capital as necessary to support the commercial opportunities for our product portfolio.

At June 30, 2012, we had cash and cash equivalents of approximately $17.9 million, compared to $7.4 million at December 31, 2011. During the first quarter of 2012, we received net proceeds of approximately $19.5 million as a result of sales of our Common Stock. The receipt of this cash during the first quarter of 2012 was offset by our cash used in operations. Our net cash outflow from operations during the first half of 2012 was approximately $8.7 million which resulted from the increase in expenditures for licenses for oncology supportive care products, commercialization of these products and research and development activities while we commercialize our Vitaros ® product for sale in the Canadian market and obtain market approval in other regions. Our operational structure with a minimum number of employees and limited space needs allows us to closely regulate our level of expenditures and to quickly adjust our spending rates as commercial opportunities develop. We operate in a rapidly changing and highly regulated marketplace and we expect to adjust our capital needs and financing plans as market conditions dictate.

Following the addition of approximately 95 employees from the Scomedica French operation in July of 2012, we increased our operating costs as we added the necessary sales and marketing personnel who currently generate contract sales from third parties and in the future; who will serve as the sales force for our marketed products to be sold in France. The operating costs of the French sales operations in recent periods have approximated €8.0 million per year.

Application of Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements (unaudited), which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.

There were no significant changes in critical accounting policies from those at December 31, 2011. The financial information as of June 30, 2012 should be read in conjunction with the financial statements for the year ended December 31, 2011, contained in our annual report on Form 10-K filed on March 13, 2012.

For a further discussion of our critical accounting policies, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K filed on March 13, 2012.

Comparison of Results of Operations between the Three Months Ended June 30, 2012 and 2011

Revenue. Revenues of the Company are mainly derived from license fees. As such, our revenue will vary significantly between quarters. Consolidated net revenue decreased by $1,475,519 to $119,633 in the second quarter of 2012 as compared to $1,595,152 in the second quarter of 2011. Licensing fee revenues in the second quarter of 2012 decreased to $2,550. The decrease in license fee revenue was primarily attributable to timing of licensing agreements for Vitaros® in the European market. In 2011, we recognized an upfront license fee of approximately $669,000 from Bracco SpA for a license to Vitaros® for the Italian market. The decrease in revenue from the Diagnostic Sales segment was $809,170 or 87% to $117,083 in the second quarter 2012 from $926,253 in the second quarter 2011. The decrease in revenue is mainly as a result of the sale of Bio-Quant (See Note 5 in the Notes to the Condensed Consolidated Financial Statements). As a result of the sale of Bio-Quant, we are no longer generating revenues related to Bio-Quant's CRO business.

Cost of Sales. The amounts reflected in cost of sales are attributable to the Diagnostic Sales segment which decreased by $922,380 or 92% to $83,845 in the second quarter 2012 as compared to $1,006,225 in the same period in 2011. The decrease in cost of sales is primarily attributable to the reduction in the current period for cost of services as a result of the sale of the Bio-Quant CRO business on June 30, 2011 (See Note 5 in the Notes to the Condensed Consolidated Financial Statements). As a result of the sale of this business, we are no longer incurring service costs related to Bio-Quant's CRO business.

Research and Development Expenses. The amounts reflected in research and development expenses are in the Pharmaceuticals segment, which decreased spending by $818,021 or 41% to $1,153,811 for the second quarter in 2012 as compared to $1,971,832 in the same period in 2011. Our decreased research and development expenditures in the second quarter of 2012 reflect a reduction of registration fees for Vitaros® during the marketing approval review of the Reference Member State ("RMS") in Europe. We are continuing to invest in our development pipeline including Vitaros® manufacturing activities and expenses related to regulatory filings in Europe for Vitaros ®as a treatment for patients with erectile dysfunction. We expect to see an overall increase in research and development spending in 2012 as a result of the expansion of our pharmaceutical products and as we prepare for regulatory filings around the world for Vitaros® and our other late stage product candidates: Femprox®, PrevOnco®, MycoVa™, RayVa®, Totect® and Granisol™.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased by $52,102 or 1% to $3,739,142 during the second quarter of 2012 from $3,687,041 during the same period in 2011. Operating expense decreased by $292,872 due to the sale of Bio-Quant (See Note 5 in the Notes to the Condensed Consolidated Financial Statements) and savings from the 2011 reserve for related party receivables in the amount of $275,990, these decreases were offset by an increase in legal and accounting fees of $595,552 related to the French business acquisition and other licensing transactions.

Loss on sale of Bio-Quant subsidiary. On June 30, 2011 we sold Bio-Quant to BioTox and incurred a non cash loss of $2,759,920 during the second quarter of 2011. The loss is primarily due to the sale of the remaining balance of Bio-Quant know-how and Bio-Quant trade name in the amount of approximately $2,642,000, net of amortization. In addition to the intangible assets, we sold net assets of approximately $985,000 offset by liabilities of approximately $367,000. The loss resulting from the disposal of these tangible and intangible assets was computed based on the realized down payment received in the transaction of $500,019.

Interest Income. We had interest income of $2,129 during the second quarter of 2012, as compared to $9,614 during the same period in 2011. The interest income is primarily from our interest bearing cash accounts.

Interest Expense. We had interest expense of $168,423 during the second quarter of 2012 as compared to $85,322 during the same period in 2011, an increase of $83,101 or 97%. The increase in interest expense in 2012 is primarily due to the accretion of interest expense associated with the discount on our contingent consideration due to Topotarget A/S when certain milestones are met.

Net Loss. The net loss was $4,926,485 or $0.19 per share in the second quarter of 2012 as compared to $7,794,092 or $0.39 per share during the same period in 2011. The decrease in net loss is partially attributable to the decreased general and administrative and research and development expenses as discussed above combined with the increase in the number of shares outstanding due to the secondary financing completed in February 2012.

Comparison of Results of Operations between the Six Months Ended June 30, 2012 and 2011

Revenue. Consolidated net revenue decreased by $2,281,103 to $901,114 during the first half of 2012 as compared to $3,182,217 during the first half of 2011. Licensing fee revenues during the first half of 2012 decreased $197,855 or 23% to $673,594 from $871,449. The change in license fee revenue was primarily attributable to the timing of licensing agreements for Vitaros® in the European market. The decrease in revenue from the Diagnostic Sales segment was $2,083,248 or 90% to $227,520 during the first half of 2012 from $2,310,768 during the first half of 2011. The decrease in revenue is mainly as a result of the sale of Bio-Quant (See Note 5 in the Notes to the Condensed Consolidated Financial Statements). As a result of the sale of Bio-Quant, we are no longer generating revenues related to Bio-Quant's CRO business.

Cost of Sales. The amounts reflected in cost of sales are attributable to the Diagnostic Sales segment which decreased by $1,851,028 or 92% to $160,205 during the first half of 2012 as compared to $2,011,233 in the same period in 2011. The decrease in cost of sales is primarily attributable to the reduction in the current period in cost of services as a result of the sale of the Bio-Quant CRO business on June 30, 2011. As a result of the sale of this business, we are no longer incurring service costs related to Bio-Quant's CRO business.

Research and Development Expenses. The amounts reflected in research and development expenses are in the Pharmaceuticals segment which decreased spending during the first half of 2012 by $546,612 or 18% to $2,525,766 as compared to $3,072,378 in the same period in 2011. Our decreased research and development expenditures during the first half of 2012 reflect a reduction of expenditures for Vitaros® during the marketing approval review of the RMS in Europe. We are continuing to invest in our development pipeline including Vitaros® manufacturing activities and expenses related to regulatory filings in Europe for Vitaros® as a treatment for patients with erectile dysfunction. We expect to continue to see an increase in research and development spending in 2012 as a result of the expansion of our pharmaceutical products and as we prepare for regulatory filings around the world for Vitaros® and our other late stage product candidates: Femprox®, PrevOnco®, MycoVa™, RayVa®, Totect® and Granisol™.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased $1,138,684 or 17% to $7,731,978 during the first half of 2012 as compared to $6,593,294 during the same period in 2011. Operating expense decreased by $482,228 due to the sale of Bio-Quant (See Note 5 in the Notes to the Condensed Consolidated Financial Statements) and savings from the 2011 reserve for related party receivables in the amount of $275,990, these decreases were offset by an increase in legal and accounting fees of $963,834 related to the acquisitions and other licensing transactions and $997,094 in operating expenses related to the acquisition, sales and marketing activities related to Totect® and Granisol™.

Loss on sale of Bio-Quant subsidiary. On June 30, 2011 we sold Bio-Quant to BioTox and incurred a non cash loss of $2,759,920 during the second quarter of 2011. The loss is primarily due to the sale of the remaining balance of Bio-Quant Know-How and Bio-Quant trade name in the amount of approximately $2,642,000, net of amortization. In addition to the intangible assets, we sold net assets of approximately $985,000 offset by liabilities of approximately $367,000. The loss resulting from the disposal of these tangible and intangible assets was computed based on the realized down payment received in the transaction of $500,019.

Interest Income. We had interest income of $5,585 during the first half of 2012, as compared to $18,587 during the same period in 2011. The interest income is primarily from our interest bearing cash accounts.

Interest Expense. We had interest expense of $341,924 during the first half of 2012 as compared to $192,039 during the same period in 2011, an increase of $149,885 or 78%. The increase in interest expense in 2012 is primarily due to the accretion of interest expense associated with the discount on our contingent consideration due to Topotarget A/S when certain milestones are met.

Net Loss. The net loss was $9,639,545 or $0.41 per share during the first half of 2012 as compared to $11,205,098 or $0.58 per share during the same period in 2011. The decrease in net loss is primarily attributable to the increase in the number of shares outstanding due to the secondary financing completed in February 2012.

Off-Balance Sheet Arrangements

As of June 30, 2012, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Disclosure of Contractual Obligations



The following table summarizes our contractual obligations and maturity dates as
of June 30, 2012:



                                                     Payments Due by Period
                                           Less than 1                                       After 5
Contractual Obligations       Total            year          1-3 years       3-5 years        years
Capital Lease
Obligations                $    20,642     $      4,032     $     9,323     $     7,287     $        -
Operating Lease
Obligations                  1,829,986          468,581         824,798         536,607              -
Other Long Term
Obligations (settled in
cash)                        4,918,934        4,171,135         347,732         355,144         44,921
Other Long Term
Obligations (settled in
common stock)                1,972,925        1,781,178         191,747               -              -
Total                      $ 8,742,487     $  6,424,926     $ 1,373,600     $   899,038     $   44,921

Long term obligations settled in cash represent the payment due to Dr. Joseph Mo, our former CEO, and amounts due to settle our 2010 convertible notes payable as discussed in Note 10 to the condensed consolidated financial statements. We believe convertible debt will require settlement in cash if not refinanced, as the current conversion price of $5.58 is greater than our current stock price at June 30, 2012. The long term obligations settled in common stock reflect the amounts and timing of the contingent payments due to Topotarget A/S for our acquisition of Topotarget USA as discussed in Note 4 to the unaudited consolidated financial statements.