UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
|
R
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2009
or
|
|
£
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period
from to
_________________
Commission
File Number 001-33216
OCULUS
INNOVATIVE SCIENCES, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
68-0423298
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S
Employer
Identification
No.)
|
1129
N. McDowell Blvd.
Petaluma,
CA 94954
(Address
of principal executive offices) (Zip Code)
(707)
782-0792
Registrant’s
telephone number, including area code
Indicate
by checkmark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes R No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes £ No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer £
|
Accelerated filer £
|
Non-accelerated filer £
|
Smaller reporting company R
|
| |
|
(Do not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No R
As of
February 11, 2010 the number of shares outstanding of the registrant’s common
stock, $0.0001 par value, was 24,928,185.
OCULUS
INNOVATIVE SCIENCES, INC.
Index
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Page
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PART
I — FINANCIAL INFORMATION
|
3
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|
Item 1. Financial
Statements
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3
|
|
Condensed
Consolidated Balance Sheets
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3
|
|
Condensed
Consolidated Statements of Operations
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4
|
|
Condensed
Consolidated Statements of Cash Flows
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5
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|
Notes
to Condensed Consolidated Financial Statements
|
6
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|
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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18
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|
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
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27
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|
Item 4. Controls and
Procedures
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27
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PART
II — OTHER INFORMATION
|
27
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|
Item 1. Legal
Proceedings
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27
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|
Item 1A. Risk
Factors
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27
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|
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
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28
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|
Item 3. Defaults Upon
Senior Securities
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28
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|
Item 4. Submission of
Matters to a Vote of Security Holders
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28
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Item 5. Other
Information
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28
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|
Item 6.
Exhibits
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29
|
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(In
thousands, except share and per share amounts)
PART
I: FINANCIAL INFORMATION
Item
1. Financial Statements
|
|
|
December 31,
2009
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|
|
March 31,
2009
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(Unaudited)
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ASSETS
|
|
|
|
|
|
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|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
5,158 |
|
|
$ |
1,921 |
|
|
Accounts
receivable, net
|
|
|
1,132 |
|
|
|
923 |
|
|
Inventories,
net
|
|
|
563 |
|
|
|
340 |
|
|
Prepaid
expenses and other current assets
|
|
|
396 |
|
|
|
758 |
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|
Total
current assets
|
|
|
7,249 |
|
|
|
3,942 |
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|
Property
and equipment, net
|
|
|
1,218 |
|
|
|
1,432 |
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|
Other
assets
|
|
|
109 |
|
|
|
73 |
|
|
Total
assets
|
|
$ |
8,576 |
|
|
$ |
5,447 |
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|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
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Current
liabilities:
|
|
|
|
|
|
|
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Accounts
payable
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|
$ |
885 |
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$ |
1,565 |
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Accrued
expenses and other current liabilities
|
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|
1,135 |
|
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|
853 |
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Current
portion of long-term debt
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|
64 |
|
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|
255 |
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Current
portion of capital lease obligations
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|
|
— |
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|
6 |
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Total
current liabilities
|
|
|
2,084 |
|
|
|
2,679 |
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Deferred
revenue
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|
|
352 |
|
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|
425 |
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Long-term
debt, less current portion
|
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|
121 |
|
|
|
74 |
|
|
Derivative
liability
|
|
|
455 |
|
|
|
— |
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|
Total
liabilities
|
|
|
3,012 |
|
|
|
3,178 |
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Commitments
and Contingencies
|
|
|
|
|
|
|
|
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Stockholders’
Equity:
|
|
|
|
|
|
|
|
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Convertible
preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares
issued and outstanding at December 31, 2009 (unaudited) and March 31,
2009
|
|
|
— |
|
|
|
— |
|
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized, 24,902,575 and
18,402,820 shares issued and outstanding at December 31, 2009 (unaudited)
and March 31, 2009, respectively
|
|
|
2 |
|
|
|
2 |
|
|
Additional
paid-in capital
|
|
|
124,093 |
|
|
|
113,803 |
|
|
Accumulated
other comprehensive loss
|
|
|
(2,946 |
) |
|
|
(3,054 |
) |
|
Accumulated
deficit
|
|
|
(115,585 |
) |
|
|
(108,482 |
) |
|
Total
stockholders’ equity
|
|
|
5,564 |
|
|
|
2,269 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
8,576 |
|
|
$ |
5,447 |
|
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(In
thousands, except per share amounts)
(Unaudited)
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
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|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
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|
Product
|
|
$ |
1,357 |
|
|
$ |
999 |
|
|
$ |
4,327 |
|
|
$ |
3,218 |
|
|
Service
|
|
|
256 |
|
|
|
222 |
|
|
|
805 |
|
|
|
695 |
|
|
Total
revenues
|
|
|
1,613 |
|
|
|
1,221 |
|
|
|
5,132 |
|
|
|
3,913 |
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
736 |
|
|
|
313 |
|
|
|
1,864 |
|
|
|
1,197 |
|
|
Service
|
|
|
186 |
|
|
|
195 |
|
|
|
659 |
|
|
|
644 |
|
|
Total
cost of revenues
|
|
|
922 |
|
|
|
508 |
|
|
|
2,523 |
|
|
|
1,841 |
|
|
Gross
profit
|
|
|
691 |
|
|
|
713 |
|
|
|
2,609 |
|
|
|
2,072 |
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|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Research
and development
|
|
|
372 |
|
|
|
933 |
|
|
|
1,676 |
|
|
|
5,621 |
|
|
Selling,
general and administrative
|
|
|
2,324 |
|
|
|
2,920 |
|
|
|
7,494 |
|
|
|
11,510 |
|
|
Total
operating expenses
|
|
|
2,696 |
|
|
|
3,853 |
|
|
|
9,170 |
|
|
|
17,131 |
|
|
Loss
from operations
|
|
|
(2,005 |
) |
|
|
(3,140 |
) |
|
|
(6,561 |
) |
|
|
(15,059 |
) |
|
Interest
expense
|
|
|
(2 |
) |
|
|
(113 |
) |
|
|
(9 |
) |
|
|
(424 |
) |
|
Interest
income
|
|
|
— |
|
|
|
17 |
|
|
|
1 |
|
|
|
149 |
|
|
Income
(loss) on derivative instruments
|
|
|
625 |
|
|
|
— |
|
|
|
(132 |
) |
|
|
— |
|
|
Other
income (expense), net
|
|
|
36 |
|
|
|
(84 |
) |
|
|
(79 |
) |
|
|
(97 |
) |
|
Net
loss
|
|
$ |
(1,346 |
) |
|
$ |
(3,320 |
) |
|
$ |
(6,780 |
) |
|
$ |
(15,431 |
) |
|
Net
loss per common share: basic and diluted
|
|
$ |
(0.05 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.97 |
) |
|
Weighted-average
number of shares used in per common share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
24,647 |
|
|
|
15,924 |
|
|
|
22,272 |
|
|
|
15,924 |
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,346 |
) |
|
$ |
(3,320 |
) |
|
$ |
(6,780 |
) |
|
$ |
(15,431 |
) |
|
Foreign
currency translation adjustments
|
|
|
(5 |
) |
|
|
(109 |
) |
|
|
108 |
|
|
|
(298 |
) |
|
Other
comprehensive loss
|
|
$ |
(1,351 |
) |
|
$ |
(3,429 |
) |
|
$ |
(6,672 |
) |
|
$ |
(15,729 |
) |
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
|
Nine Months Ended
December 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,780 |
) |
|
$ |
(15,431 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
332 |
|
|
|
617 |
|
|
Stock-based
compensation
|
|
|
1,143 |
|
|
|
2,111 |
|
|
Change
in fair value of derivative liability
|
|
|
132 |
|
|
|
— |
|
|
Non-cash
interest expense
|
|
|
— |
|
|
|
304 |
|
|
Foreign
currency transaction losses (gains)
|
|
|
(17 |
) |
|
|
25 |
|
|
Loss
on disposal of assets
|
|
|
156 |
|
|
|
219 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(134 |
) |
|
|
(268 |
) |
|
Inventories
|
|
|
(202 |
) |
|
|
(128 |
) |
|
Prepaid
expenses and other current assets
|
|
|
395 |
|
|
|
525 |
|
|
Accounts
payable
|
|
|
(296 |
) |
|
|
(1,285 |
) |
|
Accrued
expenses and other liabilities
|
|
|
170 |
|
|
|
(1,281 |
) |
|
Net
cash used in operating activities
|
|
|
(5,101 |
) |
|
|
(14,592 |
) |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Change
in restricted cash
|
|
|
— |
|
|
|
22 |
|
|
Change
in long-term deposits
|
|
|
(47 |
) |
|
|
— |
|
|
Purchases
of property and equipment
|
|
|
(74 |
) |
|
|
(347 |
) |
|
Net
cash used in investing activities
|
|
|
(121 |
) |
|
|
(325 |
) |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock, net of offering costs
|
|
|
7,155 |
|
|
|
36 |
|
|
Proceeds
from the exercise of common stock options and warrants
|
|
|
1,576 |
|
|
|
— |
|
|
Principal
payments on debt
|
|
|
(299 |
) |
|
|
(1,430 |
) |
|
Payments
on capital lease obligations
|
|
|
(6 |
) |
|
|
(17 |
) |
|
Net
cash provided by (used in) financing activities
|
|
|
8,426 |
|
|
|
(1,411 |
) |
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
33 |
|
|
|
(76 |
) |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
3,237 |
|
|
|
(16,404 |
) |
|
Cash
and equivalents, beginning of period
|
|
|
1,921 |
|
|
|
18,823 |
|
|
Cash
and equivalents, end of period
|
|
$ |
5,158 |
|
|
$ |
2,419 |
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
9 |
|
|
$ |
136 |
|
|
Equipment
financed
|
|
$ |
155 |
|
|
$ |
— |
|
|
Obligations
settled with stock
|
|
$ |
417 |
|
|
$ |
— |
|
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Summary of
Significant Accounting Policies
Organization
Oculus
Innovative Sciences, Inc. (the “Company”) was incorporated under the laws of the
State of California in April 1999 and was reincorporated under the laws of the
State of Delaware in December 2006. The Company’s principal office is located in
Petaluma, California. The Company develops, manufactures and markets a family of
products intended to prevent and treat infections in chronic and acute wounds.
The Company’s platform technology, called Microcyn, is a proprietary oxychlorine
small molecule formulation that is designed to treat a wide range of organisms
that cause disease, or pathogens, including viruses, fungi, spores and
antibiotic resistant strains of bacteria. The Company conducts its business
worldwide, with significant subsidiaries in Europe and Mexico.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements as of
December 31, 2009 and for the three and nine months then ended have been
prepared in accordance with the accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and
Exchange Commission (“SEC”) and on the same basis as the annual audited
consolidated financial statements. The unaudited condensed consolidated balance
sheet as of December 31, 2009, condensed consolidated statements of operations
for the three and nine months ended December 31, 2009 and 2008, and the
condensed consolidated statements of cash flows for the nine months ended
December 31, 2009 and 2008 are unaudited, but include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of the financial position, operating results
and cash flows for the periods presented. The results for the three and nine
months ended December 31, 2009 are not necessarily indicative of results to be
expected for the year ending March 31, 2010 or for any future interim period.
The condensed consolidated balance sheet at March 31, 2009 has been derived from
audited consolidated financial statements. However, it does not include all of
the information and notes required by accounting principles generally accepted
in the United States of America for complete consolidated financial statements.
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements for the year ended March
31, 2009, and notes thereto included in the Company’s Form 10-K, which was filed
with the SEC on June 11, 2009.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the dates of
the condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Periodically, the Company
evaluates and adjusts estimates accordingly. The allowance for uncollectible
accounts receivable balances amounted to $99,000 and $51,000, which are included
in accounts receivable, net in the accompanying December 31, 2009 and March 31,
2009 condensed consolidated balance sheets, respectively.
Foreign
Currency Reporting
The
consolidated financial statements are presented in United States Dollars in
accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 830 “Foreign Currency Matters”. Accordingly, the
Company’s subsidiaries, Oculus Technologies of Mexico, S.A. de C.V. (“OTM”) uses
the local currency (Mexican Pesos) as its functional currency, and Oculus
Innovative Sciences Netherlands, B.V. (“OIS Europe”) uses the local currency
(Euro) as its functional currency. Assets and liabilities are translated at
exchange rates in effect at the balance sheet date, and revenue and expense
accounts are translated at average exchange rates during the period. Resulting
translation adjustments were recorded in accumulated other comprehensive loss in
the accompanying condensed consolidated balance sheets at December 31, 2009 and
March 31, 2009.
Foreign
currency transaction gains (losses) relate primarily to trade payables and
receivables between subsidiaries OTM and OIS Europe. These transactions are
expected to be settled in the foreseeable future. The Company recorded foreign
currency transaction gains (losses) of $1,000 and $(65,000) for the three months
ended December 31, 2009 and 2008, respectively and $17,000 and (25,000) for the
nine months ended December 31, 2009 and 2008, respectively. The related gains
(losses) were recorded in other income (expense) in the accompanying condensed
consolidated statements of operations. Loans made to its subsidiaries OTM and
OIS Europe are expected be paid back to the Company as cash flows sufficient to
repay the loans are generated.
Net
Loss per Share
The
Company computes net loss per share in accordance with ASC 260 “Earnings per
Share,” basic net loss per share is computed by dividing net loss per share
available to common stockholders by the weighted average number of common shares
outstanding for the period and excludes the effects of any potentially dilutive
securities. Diluted earnings per share, if presented, would include the dilution
that would occur upon the exercise or conversion of all potentially dilutive
securities into common stock using the “treasury stock” and/or “if converted”
methods as applicable. The computation of basic loss per share for the three and
nine months ended December 31, 2009 and 2008, excludes potentially dilutive
securities because their inclusion would be anti-dilutive.
The
following securities were excluded from basic and diluted net loss per share
calculation because their inclusion would be anti-dilutive (in
thousands):
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Options
to purchase common stock
|
|
|
3,232 |
|
|
|
3,424 |
|
|
Restricted
stock units
|
|
|
30 |
|
|
|
60 |
|
|
Warrants
to purchase common stock
|
|
|
10,380 |
|
|
|
3,303 |
|
|
|
|
|
13,642 |
|
|
|
6,787 |
|
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company accounts for the issuance of common stock purchase warrants issued and
other free standing derivative financial instruments in accordance with the
applicable provisions of ASC 815 “Derivatives and Hedging” (“ASC 815”). Based on
the provisions of ASC 815, the Company classifies as equity any contracts that
(i) require physical settlement or net-share settlement or (ii) gives the
Company a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). The Company classifies as assets
or liabilities any contracts that (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that event
is outside the control of the Company) or (ii) gives the counterparty a choice
of net-cash settlement or settlement in shares (physical settlement or net-share
settlement). The Company assesses classification of its freestanding derivatives
at each reporting date to determine whether a change in classification between
assets and liabilities is required. The Company determined that its freestanding
derivatives, which principally consist of warrants to purchase common stock,
satisfied the criteria for classification as equity instruments at December 31,
2009 and March 31, 2009 other than certain warrants that contain reset
provisions that the Company classified as derivative liabilities as more fully
described in Note 5.
Fair
Value of Financial Assets and Liabilities
Financial
instruments, including cash and cash equivalents, accounts payable and accrued
liabilities are carried at cost, which management believes approximates fair
value due to the short-term nature of these instruments. The fair value of
capital lease obligations and equipment loans approximates its carrying amounts
as a market rate of interest is attached to their repayment.
The
Company measures the fair value of financial assets and liabilities based on the
guidance of ASC 820 “Fair Value Measurements and Disclosures” which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements on April 1, 2009, the Company adopted the new
standard for financial assets and liabilities, as well as for any other assets
and liabilities that are carried at fair value on a recurring
basis.
The
standard defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The standard also establishes a
fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level 1 —
quoted prices in active markets for identical assets or liabilities
Level 2 —
quoted prices for similar assets and liabilities in active markets or inputs
that are observable
Level 3 —
inputs that are unobservable (for example cash flow modeling inputs based on
assumptions)
Financial
liabilities measured at fair value on a recurring basis are summarized
below:
|
|
|
Fair value measurements at December 31, 2009 using
|
|
|
|
|
December 31,
2009
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations (Note 5)
|
|
|
455,000 |
|
|
|
— |
|
|
|
— |
|
|
|
455,000 |
|
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring through February 11,
2010, the date the financial statements were issued.
Recent
Accounting Pronouncements
In
December 2008, the FASB issued ASC 815-40 “Contracts in Entity’s own Equity.”
This issue addresses the determination of whether an instrument (or an embedded
feature) is indexed to an entity’s own stock, which is the first part of the
scope exception in paragraph 11(a) of Statement 133. This issue is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company has included the
impact of ASC 815-40 in its June 30, 2009 condensed consolidated financial
statements (Note 5).
In April
2009, the FASB issued ASC 820-10-65 “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” Based on the guidance, if an
entity determines that the level of activity for an asset or liability has
significantly decreased and that a transaction is not orderly, further analysis
of transactions or quoted prices is needed, and a significant adjustment to the
transaction or quoted prices may be necessary to estimate fair value in
accordance with Statement of Financial Accounting Standards ASC 820-10 “Fair
Value Measurements”. This is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The Company adopted this
guidance for its quarter ended June 30, 2009. The adoption has no impact on the
Company’s condensed consolidated financial statements.
In April
2009, the FASB issued ASC 825, “Financial Instruments” (“ASC 825”). This
standard extends the disclosure requirements concerning the fair value of
financial instruments to interim financial statements of publicly traded
companies. This guidance is effective for interim or annual financial periods
ending after June 15, 2009, and as such, became effective for the Company in the
quarter ended June 30, 2009. The adoption of ASC 855 had no material impact on
the Company’s consolidated financial position, results of operations or cash
flows.
In May
2009, the FASB issued guidance now codified as ASC Topic 855, “Subsequent
Events.” ASC Topic 855 establishes standards for the disclosure of events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. ASC Topic 855 introduces the concept of financial
statements being “available to be issued.” It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis for
that date. The disclosure should alert all users of financial statements that an
entity has not evaluated subsequent events after that date in the set of
financial statements being presented. The Company adopted ASC Topic 855 for the
period ended June 30, 2009. The adoption of ASC Topic 855 had no material impact
on the Company’s consolidated financial position, results of operations or cash
flows.
In July
2009, the FASB issued ASC 105, “Generally Accepted Accounting Principles” (“ASC
105”). ASC 105 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with Generally
Accepted Accounting Principles (“GAAP”) in the United States (the GAAP
hierarchy). ASC 105 is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. Adoption of the standard did not
have an impact on the Company’s condensed consolidated financial
statements.
In August
2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures
(Topic 820) — Measuring Liabilities at Fair Value. This Accounting Standards
Update amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall,
to provide guidance on the fair value measurement of liabilities. The adoption
of ASU 2009-05 is not expected to have a material impact on our condensed
consolidated financial statements.
Other
accounting standards that have been issued or proposed by the FASB and SEC
and/or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.
Note 2. Liquidity and Financial
Condition
The
Company incurred a net loss of $1,346,000 and $6,780,000 for the three and nine
months ended December 31, 2009, respectively. At December 31, 2009, the
Company’s accumulated deficit amounted to $115,585,000. During the nine months
ended December 31, 2009, net cash used in operating activities amounted to
$5,101,000. At December 31, 2009, the Company’s working capital amounted to
$5,165,000.
On June
1, 2009, the Company issued the final tranche from the February 24, 2009 private
placement (Note 6). The issuance comprised of an aggregate of 1,709,402 shares
of common stock, Series A Warrants to purchase an aggregate of 1,000,000 shares
of common stock and Series B Warrants to purchase an aggregate of 1,333,333
shares of common stock to the Investors pro rata to the investment amount of
each Investor. The Company received $2,000,000 in connection with this
transaction.
On July
30, 2009, the Company closed a registered direct placement of 2,454,000 shares
of its common stock at a purchase price of $2.45 per share, and warrants to
purchase an aggregate of 1,226,991 shares of common stock at an exercise price
of $3.3875 per share for gross proceeds of $6,012,000 (net proceeds of
$5,155,000 after deducting the placement agent’s commissions and other offering
costs).
During
the nine months ended December 31, 2009, the Company received $1,576,000 in
connection with the exercise of 1,075,692 common stock purchase warrants and the
exercise of 570,864 stock options.
The
Company currently anticipates that its cash and cash equivalents, the proceeds
from the July 30, 2009 registered direct offering, proceeds received from
the exercise of common stock purchase warrants and option exercises during the
nine months ended December 31, 2009, and revenues it expects to generate
will be sufficient to meet its anticipated cash requirements to continue its
sales and marketing and some research and development through at least
December 31, 2010. However, in order to execute the Company’s Microcyn
product development strategy and to penetrate new and existing markets, the
Company may need to raise additional funds, through public or private equity
offerings, debt financings, corporate collaborations or other means. The Company
has implemented cost cutting initiatives while continuing to increase revenue in
an effort to reach cash breakeven. The Company may raise additional capital to
pursue its product development initiatives and penetrate markets for the sale of
its products.
Management
believes that the Company has access to capital resources through possible
public or private equity offerings, debt financings, corporate collaborations or
other means; however, the Company has not secured any commitment for new
financing at this time, nor can it provide any assurance that new financing will
be available on commercially acceptable terms, if needed. If the Company is
unable to secure additional capital, it may be required to curtail its research
and development initiatives and take additional measures to reduce costs in
order to conserve its cash.
The
Company has used, or intends to use, the proceeds from the offerings described
above principally for general corporate purposes, including working
capital.
Note 3. Condensed Consolidated
Balance Sheet
Inventories
Inventories
consisted of the following (in thousands):
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
|
Raw
materials
|
|
$ |
373 |
|
|
$ |
277 |
|
|
Finished
goods
|
|
|
315 |
|
|
|
134 |
|
|
|
|
|
688 |
|
|
|
411 |
|
|
Less:
inventory allowances
|
|
|
(125 |
) |
|
|
(71 |
) |
|
|
|
$ |
563 |
|
|
$ |
340 |
|
Notes
Payable
From
February 7, 2005 to February 16, 2009, the Company entered into eight separate
note agreements for aggregate principal amounting to $619,000 with interest
rates ranging from 3.99% to 14.44% per annum. These instruments are mostly
connected to automobile and insurance premium financing. During the three months
ended December 31, 2009, the Company made principal and interest payments
related to these notes in the amounts of $68,000 and $1,000, respectively.
During the nine months ended December 31, 2009, the Company made principal and
interest payments related to these notes in the amounts of $291,000 and $7,000,
respectively. The remaining balance of these notes amounted to $38,000 at
December 31, 2009 of which $34,000 is included in the current portion of
long-term debt in the accompanying condensed consolidated balance
sheet.
On August
29, 2009, the Company entered into a note agreement for principal amounting to
$100,000 with an interest rate of 2.90% per annum. This instrument is in
connection with financing an automobile. During the three months ended December
31, 2009, the Company made principal and interest payments related to this note
in the amounts of $5,000 and $1,000, respectively. During the nine months ended
December 31, 2009, the Company made principal and interest payments related to
this note in the amounts of $6,000 and $2,000, respectively. The remaining
balance of this note amounted to $94,000 at December 31, 2009 of which $19,000
is included in the current portion of long-term debt in the accompanying
condensed consolidated balance sheet.
On
October 7, 2009, the Company entered into a note agreement for principal
amounting to $57,000 with an interest rate of 2.90% per annum. This instrument
is in connection with financing an automobile. During the three months ended
December 31, 2009, the Company made principal and interest payments related to
this note in the amounts of $2,000 and $0, respectively. The remaining balance
of this note amounted to $53,000 at December 31, 2009 of which $11,000 is
included in the current portion of long-term debt in the accompanying condensed
consolidated balance sheet.
Note 4. Commitments and
Contingencies
Legal
Matters
In
February 2007, the Company’s Mexico subsidiary served Quimica Pasteur (“QP”), a
former distributor of the Company’s products in Mexico, with a claim alleging
breach of contract under a note made by QP. A trial date has not yet been
set.
The
Company, from time to time, is involved in legal matters arising in the ordinary
course of its business including matters involving proprietary technology. While
management believes that such matters are currently not material, there can be
no assurance that matters arising in the ordinary course of business for which
the Company is or could become involved in litigation, will not have a material
adverse effect on its business, financial condition or results of
operations.
Employment
Agreements
As of
December 31, 2009, the Company had employment agreements with five of its key
executives. The agreements provide, among other things, for the payment of nine
to twenty-four months of severance compensation for terminations under certain
circumstances. With respect to these agreements, at December 31, 2009, potential
severance amounted to $1,840,000 and aggregated annual salaries amounted to
$1,305,000.
Board
Compensation
On April
26, 2007, the Company’s board of directors adopted a Non-Employee Director
Compensation Package (the “Compensation Package”) to provide members of the
board and its committees with regular compensation. The Compensation Package
provides for cash compensation in the amount of $25,000 to each non-employee
member of the board of directors, and annual payments ranging from $2,000 to
$5,000 for participation on board committees. Employee directors do not receive
any form of compensation for their board participation. Additionally, on an
annual basis the board members are automatically granted 15,000 stock options.
The Company intends to issue stock options to the board members in lieu of cash
installments.
Commercial
Agreements
On May 8,
2007, and June 11, 2007, the Company entered into separate commercial agreements
with two unrelated customers granting such customers the exclusive right to sell
the Company’s products in specified territories or for specified uses. Both
customers are required to maintain certain minimum levels of purchases of the
Company’s products in order to maintain the exclusive right to sell the
Company’s products. Up-front payments amounting to $625,000 paid under these
agreements have been recorded as deferred revenue. The short-term portion of the
deferred revenue related to these agreements amounted to $97,500 which is
included in accrued expenses and other current liabilities in the accompanying
condensed consolidated balance sheet at December 31, 2009. The up-front fees are
being amortized on a straight-line basis over the terms of the underlying
agreements. For the three months ended December 31, 2009 and 2008, the Company
amortized $24,000 in each period, and for the nine months ended December 31,
2009 and 2008 the Company amortized $48,000 in each period, related to these
agreements. These amounts are included in product revenue in the accompanying
condensed consolidated statement of operations.
Amendment
to Petaluma Building Lease
On May 1,
2009, the Company amended its lease for its facility in Petaluma which resulted
in a reduction of the Company’s monthly lease payment. Pursuant to the
amendment, the Company agreed to surrender 8,534 square feet of office space,
extended the lease expiration on the remaining lease to December 31, 2011,
provided the property owner with a $50,000 cash payment, and on August 28, 2009
issued the property owner 53,847 shares of the Company’s common stock (Note
6).
Agreements
with Related Party
On
January 26, 2009, the Company entered into a commercial agreement with
Vetericyn, Inc., a California corporation wholly-owned by the Company’s former
director, Robert Burlingame, to market and sells its Vetericyn products.
Vetericyn, Inc. later changed its name to V&M Industries and then to
Innovacyn, Inc. (“Innovacyn”), which remains wholly-owned by Mr. Burlingame.
Additionally, Mr. Burlingame holds a significant position in the Company’s
common stock. This agreement was amended on February 24, 2009 and on July 24,
2009. Pursuant to the agreement, the Company provides Innovacyn with bulk
product and Innovacyn bottles, packages, and sells Vetericyn products. The
Company receives a fixed amount for each bottle of Vetericyn sold by Innovacyn.
On September 15, 2009, Innovacyn and the Company amended this agreement whereby
the Company granted Innovacyn a non-exclusive right to market the Company’s
Microcyn over-the-counter (“OTC”) liquid and gel products. The
Company manufactures the Microcyn OTC products and will continue to bear all
inventory and collection risks related to most of these sales. Accordingly, the
Company records this revenue on the gross basis and records expenses related to
Innovacyn’s marketing efforts in selling, general and administrative expenses.
In addition, once certain milestones are met by Innovacyn, the Company will
share revenue generated by Innovacyn related to Vetericyn and Microcyn OTC
sales. During the three and nine months ended December 31, 2009, the Company
recorded revenue related to these agreements in the amounts of $165,000 and
$256,000, respectively. The revenue is recorded in product revenues in the
accompanying condensed consolidated statements of operations.
Other
Matters
On
September 16, 2005, the Company entered into a series of agreements with QP, a
Mexico-based company engaged in the business of distributing pharmaceutical
products to hospitals and health care entities owned or operated by the Mexican
Ministry of Health. These agreements provided, among other things, for QP to act
as the Company’s exclusive distributor of Microcyn to the Mexican Ministry of
Health for a period of three years. In connection with these agreements, the
Company was concurrently granted an option to acquire all except a minority
share of the equity of QP directly from its principals in exchange for 150,000
shares of common stock, contingent upon QP’s attainment of certain financial
milestones. The Company’s distribution and related agreements were cancelable by
the Company on thirty days’ notice without cause and included certain provisions
to hold the Company harmless from debts incurred by QP outside the scope of the
distribution and related agreements. The Company terminated these agreements on
March 26, 2006 without having exercised the option.
Due to
its liquidity circumstances, QP was unable to sustain operations without the
Company’s subordinated financial and management support. Accordingly, QP was
deemed to be a variable interest entity in accordance with FIN 46(R) and its
results were consolidated with the Company’s consolidated financial statements
for the period of September 16, 2005 through March 26, 2006, the effective
termination date of the distribution and related agreement, without such option
having been exercised.
Subsequent
to having entered into the agreements with QP, the Company became aware of an
alleged tax avoidance scheme involving the principals of QP. The audit committee
of the Company’s board of directors engaged an independent counsel, as well as
tax counsel in Mexico to investigate this matter. The audit committee of the
board of directors was advised that QP’s principals could be liable for up to
$7,000,000 of unpaid taxes; however, the Company is unlikely to have any loss
exposure with respect to this matter because the alleged tax omission occurred
prior to the Company’s involvement with QP. The Company has not received any
communications to date from Mexican tax authorities with respect to this
matter.
Based on
an opinion of Mexico counsel, the Company’s management and the audit committee
of the board of directors do not believe that the Company is likely to
experience any loss with respect to this matter. However, there can be no
assurance that the Mexican tax authorities will not pursue this matter and, if
pursued, that it would not result in a material loss to the
Company.
Note 5. Derivative
Liability
In
accordance with the applicable provisions of ASC 815-40, “Contracts in Entity’s
Own Equity,” financial instruments which do not have fixed settlement provisions
are deemed to be derivative instruments. The common stock warrants issued with
the Company’s August 13, 2007 private placement, and the common stock warrants
issued to the placement agent in the transaction, do not have fixed settlement
provisions because their exercise prices may be lowered if the Company issues
securities at lower prices in the future (Note 6). The Company was required to
include the reset provisions in order to protect the warrant holders from the
potential dilution associated with future financings. In accordance with ASC
815, the warrants were recognized as a derivative instrument and have been
re-characterized as derivative liabilities. ASC 815 requires that the fair value
of these liabilities be re-measured at the end of every reporting period with
the change in value reported in the statement of operations.
The
derivative liabilities were valued using the Black-Scholes option valuation
model and the following assumptions on the following dates:
|
|
|
December 31,
2009
|
|
|
April 1,
2009
|
|
|
Expected
life
|
|
2.62
years
|
|
|
3.37
years
|
|
|
Risk-free
interest rate
|
|
|
1.70 |
% |
|
|
1.15 |
% |
|
Dividend
yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
Volatility
|
|
|
84 |
% |
|
|
84 |
% |
|
Warrants
outstanding
|
|
|
809,810 |
|
|
|
953,752 |
|
|
Fair
value of warrants
|
|
$ |
455,000 |
|
|
$ |
323,000 |
|
Effective
April 1, 2009 the Company reclassified the fair value of these common stock
purchase warrants from equity to liability as if these warrants were treated as
a derivative liability since their date of issue. On April 1, 2009, the Company
recorded a $323,000 derivative liability and a corresponding charge to its
accumulated deficit to recognize the cumulative effects of having adopted this
accounting policy. The fair value of the derivative liability increased to
$455,000 at December 31, 2009 from $323,000 at April 1, 2009. Accordingly, the
Company increased the derivative liability by $132,000 to reflect the change in
fair value for the nine months ended December 31, 2009. This amount is included
as a change in the fair value of derivative instruments in the accompanying
condensed consolidated statement of operations for the nine months ended
December 31, 2009. Additionally, during the three months ended December 31,
2009, the Company recorded gains of $625,000 related to its derivative
liabilities. This amount represents a decrease in the fair value of its
derivative liabilities from $1,080,000 at September 30, 2009 to $455,000 at
December 31, 2009. This amount is included as income on derivative instruments
in the accompanying condensed consolidated statement of operations for the three
months ended December 31, 2009.
Note 6. Stockholders’
Equity
Common
Stock Issued to Director
On April
1, 2009, the Company entered into a six month consulting agreement with a member
of its Board of Directors, Mr. Bob Burlingame. Pursuant to the agreement, Mr.
Burlingame will provide the Company with sales and marketing expertise and
services. In consideration of his services, the Company agreed to issue Mr.
Burlingame 435,897 unregistered shares of its common stock. The Company issued
the shares on June 12, 2009. The shares were fully vested and non-forfeitable at
the time of issuance. The fair value of the common stock was more readily
determinable than the fair value of the services rendered. Following the
guidance enumerated in ASC 505 “Equity-Based Payments to Non-Employees”, the
Company is amortizing the fair value of the warrants over the nine month term of
the consulting agreement which is consistent with its treatment of similar cash
transactions. Accordingly, the Company will record $476,000 of stock
compensation expense related to this agreement was recognized on a straight-line
basis over the six month term of the agreement (April 1, 2009 to October 1,
2009). During the nine months ended December 31, 2009, the Company recorded
$476,000 of compensation expense related to this agreement. The expense was
recorded as selling, general and administrative expense in the accompanying
condensed consolidated statements of operations.
Common
Stock Issued to Service Providers
On April
24, 2009, the Company entered into an agreement with a contract sales
organization (“CSO”) that will serve as the Company’s sales force for the sale
of wound care products in the United States. Pursuant to the agreement, the
Company agreed to pay the CSO a monthly fee and potential bonuses that will be
based on achievement of certain levels of sales. The Company agreed to issue the
CSO shares of common stock each month as compensation for its services. During
the three and nine months ended December 31, 2009, the Company issued 9,653 and
39,753 shares of common stock, respectively, in connection with this agreement.
The Company has determined the fair value of the common stock, which was
calculated as shares were issued, was more readily determinable than the fair
value of the services rendered. Accordingly, the Company recorded the fair
market value of the stock as compensation expense. The expense will be
recognized as the shares of stock are earned. During the three and nine months
ended December 31, 2009, the Company recorded $21,000 and $61,000 of
compensation expense, respectively. These expenses were recorded as selling,
general and administrative expense in the accompanying condensed consolidated
statements of operations.
On
October 27, 2009, the Company entered into an agreement with a consultant that
provides finance related services. Pursuant to the agreement, the Company agreed
to pay the consultant a cash fee and 4,545 shares of common stock. During the
three months ended December 31, 2009, the Company issued the shares of common
stock. The Company has determined the fair value of the common stock,
was more readily determinable than the fair value of the services rendered.
Accordingly, the Company recorded the fair market value of the stock as
compensation expense. During the three months ended December 31, 2009, the
Company recorded $10,000 of compensation expense related to this agreement. The
expense was recorded as selling, general and administrative expense in the
accompanying condensed consolidated statements of operations.
Common
Stock Issued in Private Placement
On
February 24, 2009, the Company entered into a Purchase Agreement with Robert
Burlingame, a director of the Company, and an accredited investor. Pursuant to
the terms of the Purchase Agreement, the investors agreed to make a $3,000,000
investment in the Company. The investors paid $1,000,000 (net proceeds of
$948,000 after deducting offering expenses) for 854,701 shares of common stock
on February 24, 2009 and paid $2,000,000 for 1,709,402 shares of common stock on
June 1, 2009. In addition, the Company issued to the investors Series A Warrants
to purchase a total of 1,500,000 shares of common stock pro rata to the number
of shares of common stock issued on each closing date at an exercise price $1.87
per share. The Series A Warrants became exercisable after six months and have a
five year term. The Company also issued to the investors Series B Warrants to
purchase a total of 2,000,000 shares of common stock pro rata to the number of
shares of common stock issued on each closing date at an exercise price of $1.13
per share. The Series B Warrants became exercisable after six months and have a
three year term. In addition, for every two shares of common stock the investor
purchases upon exercise of a Series B Warrant, the investor will receive an
additional Series C Warrant to purchase one share of common stock. The Series C
Warrant shall be exercisable after six months and will have an exercise price of
$1.94 per share and have a five year term. The Company will only be obligated to
issue Series C Warrants to purchase up to 1,000,000 shares of common
stock. During the nine months ended December 31, 2009, 780,000 Series
B warrants were exercised resulting in proceeds of
$881,000. Accordingly, the Company issued 390,000 Series C warrants
as a result of the warrant exercise.
Registered
Direct Offering
On July
30, 2009, the Company closed a registered direct placement of Units of its
common stock to certain accredited investors. For each Unit purchased in this
offering, the investors received one share of the Company’s common stock and a
warrant to purchase one half of one share of common stock. The offering price of
each Unit was $2.45 per Unit. The Company sold 2,454,000 Units consisting of
2,454,000 shares of common stock and 1,226,991 warrants to purchase common
stock. The exercise price of each warrant is $3.3875 per share, the warrants
become exercisable six months following the close of the offering and expire
five years following the close of the offering. The Company received gross
proceeds of $6,012,000 (net proceeds of $5,159,000 after deducting the placement
agent’s commissions and other offering costs) from this offering.
Common
Stock Issued to Settle Obligations
During
the nine months ended December 31, 2009, the Company issued shares of common
stock to various vendors to settle outstanding accounts payables. The Company
entered into settlement agreements with these vendors and issued a total of
155,755 shares with a fair value equal to the outstanding payables or $346,000.
Additionally, the Company issued the property owner of its Petaluma, CA facility
53,847 shares with a fair value of $70,000. These shares were issued as partial
settlement in connection with the renegotiation of the lease. The
fair value of the shares will be amortized on a straight-line basis over the
remaining term of the lease which expires on September 30, 2011.
Anti-dilution
Adjustments
Pursuant
to an anti-dilution provision contained in both the August 13, 2007 private
placement investor and placement agent warrant agreements, for various
transactions during the nine months ended December 31, 2009, the Company was
required to adjust the exercise price and the number of warrants held by each
warrant holder under these agreements. These adjustments were the result of the
issuance of the 2,454,000 Units issued in connection with the registered direct
offering closed on July 30, 2009, the issuance of 465,997 shares of common stock
to certain consultants in consideration for their services, and 209,602 shares
of common stock issued in connection with the settlement of certain obligations.
The exercise price for the warrants was adjusted from $5.03 to $4.34 and an
additional 151,750 warrants were issued. During the three months
ended December 31, 2009, the Company extended an offer to certain warrant
holders by which the exercise price of the warrants would be reduced in return
for immediate exercise of the warrants. Certain warrant holders
accepted the offer and the Company modified 295,692 of the outstanding warrants
by lowering the exercise price to $1.70 per share. At December 31,
2009, the total number of warrants outstanding subject to adjustment, was
809,810.
Note 7. Stock-Based
Compensation
The
Company accounts for share-based awards exchanged for employee services in
accordance with ASC 718 “Compensation-Stock Compensation” (“ASC 718”) under
which share-based compensation expense is measured at the grant date, based on
the estimated fair value of the award. The Company estimates the fair value of
employee stock awards using the Black-Scholes option pricing model. The Company
amortizes the fair value of employee stock options on a straight-line basis over
the requisite service period of the awards.
The
effect of recording stock-based compensation expense in accordance with the
applicable provisions of ASC 718 is as follows (in thousands, except per share
amounts):
|
|
|
Three Months
Ended
December 31,
|
|
|
Nine Months
Ended
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Cost
of service revenue
|
|
$ |
5 |
|
|
$ |
4 |
|
|
$ |
15 |
|
|
$ |
11 |
|
|
Research
and development
|
|
|
18 |
|
|
|
25 |
|
|
|
77 |
|
|
|
94 |
|
|
Selling,
general and administrative
|
|
|
182 |
|
|
|
130 |
|
|
|
504 |
|
|
|
1,810 |
|
|
Total
stock-based compensation
|
|
$ |
205 |
|
|
$ |
159 |
|
|
$ |
596 |
|
|
$ |
1,915 |
|
No income
tax benefit has been recognized relating to stock-based compensation expense and
no tax benefits have been realized from exercised stock options.
The fair
value of employee stock options was estimated using the following
weighted-average assumptions:
|
|
|
Three Months
Ended
December 31,
|
|
|
Nine Months
Ended
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Expected
life
|
|
5.7
years
|
|
|
5.9
years
|
|
|
5.9
years
|
|
|
6.0
years
|
|
|
Risk-free
interest rate
|
|
|
2.69 |
% |
|
|
1.63 |
% |
|
|
2.12 |
% |
|
|
1.83 |
% |
|
Dividend
yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
Volatility
|
|
|
84 |
% |
|
|
83 |
% |
|
|
85 |
% |
|
|
82 |
% |
The
expected term of stock options represents the average period the stock options
are expected to remain outstanding and is based on the expected term calculated
using the approach prescribed by SAB 110 for “plain vanilla” options. The
Company used this approach as it did not have sufficient historical exercise
information to develop reasonable expectations about future exercise patterns
and post-vesting employment termination behavior. The expected stock price
volatility for the Company’s stock options was determined by examining the
historical volatilities for industry peers and using an average of the
historical volatilities of the Company’s industry peers. The Company will
continue to analyze the stock price volatility and expected term assumptions as
more data for the Company’s common stock and exercise patterns becomes
available. The risk-free interest rate assumption is based on the U.S. Treasury
instruments whose term was consistent with the expected term of the Company’s
stock options. The expected dividend assumption is based on the Company’s
history and expectation of dividend payouts.
In
addition, ASC 718 requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were estimated at 5% based on historical
experience.
A summary
of all option activity as of December 31, 2009 and changes during the nine
months then ended is presented below:
|
Options
|
|
Shares
(000)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Outstanding
at April 1, 2009
|
|
|
3,964 |
|
|
$ |
3.28 |
|
|
|
|
|
|
|
|
Granted
|
|
|
275 |
|
|
|
2.05 |
|
|
|
|
|
|
|
|
Exercised
|
|
|
(571 |
) |
|
|
0.37 |
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(436 |
) |
|
|
7.14 |
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
3,232 |
|
|
$ |
3.18 |
|
|
|
7.59 |
|
|
$ |
1,775 |
|
|
Exercisable
at December 31, 2009
|
|
|
1,583 |
|
|
$ |
4.60 |
|
|
|
6.20 |
|
|
$ |
508 |
|
In
addition to the above option activity, on April 26, 2007, an award of 60,000
stock units was issued to an officer of the Company. Each stock unit represents
the right to receive a share of the Company’s common stock, in consideration of
past services rendered and the payment by the officer of $3.00 per share, upon
the settlement of the stock unit on a fixed date in the future. Half of the
stock units, representing 30,000 shares, were forfeited on January 15, 2009 and
the remaining 30,000 were forfeited on January 15, 2010.
The
aggregate intrinsic value is calculated as the difference between the exercise
price of the stock options and the underlying fair value of the Company’s common
stock (1.83) for stock options that were in-the-money as of December 31,
2009.
At
December 31, 2009, there was unrecognized compensation costs of $1,582,000
related to stock options accounted for in accordance with the provisions of ASC
718. The cost is expected to be recognized over a weighted-average amortization
period of 2.12 years.
The
Company issues new shares of common stock upon exercise of stock
options.
As
provided under the Company’s 2006 Stock Incentive Plan (“2006 Plan”), the
aggregate number of shares authorized for issuance as awards under the 2006 Plan
automatically increased on April 1, 2009 by 920,141 shares (which number
constitutes 5% of the outstanding shares on the last day of the year ended March
31, 2009). Additionally, by a vote of the shareholders of the Company the shares
authorized for issuance under the plan was increased by 1,000,000. Remaining
shares authorized for issuance from the 2006 Plan at December 31, 2009 was
1,917,000.
Note 8. Income
Taxes
The
Company has completed a study to assess whether a change in control has occurred
or whether there have been multiple changes of control since the Company’s
formation. The study concluded that no change in control occurred for purposes
of Internal Revenue Code section 382. The Company, after considering all
available evidence, fully reserved for these and its other deferred tax assets
since it is more likely than not such benefits will not be realized in future
periods. The Company has incurred losses for both financial reporting and income
tax purposes for the three and nine months ended December 31, 2009. Accordingly,
the Company is continuing to fully reserve for its deferred tax assets. The
Company will continue to evaluate its deferred tax assets to determine whether
any changes in circumstances could affect the realization of their future
benefit. If it is determined in future periods that portions of the Company’s
deferred income tax assets satisfy the realization standard of ASC 740 “Income
Taxes” (“ASC 740”), the valuation allowance will be reduced
accordingly.
ASC 740
addresses how tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under ASC 740, the tax benefit
from an uncertain tax position can be recognized only if it is more likely than
not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based
on the largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate resolution. ASC 740 had no impact on the Company’s
financial condition, results of operations or cash flows.
The
Company has identified its federal tax return and its state tax return in
California as major tax jurisdictions. The Company is also subject to certain
other foreign jurisdictions, principally Mexico and The Netherlands. The
Company’s evaluation of ASC 740 tax matters was performed for tax years ended
through March 31, 2009. Generally, the Company is subject to audit for the years
ended March 31, 2009, 2008 and 2007 and maybe be subject to audit for amounts
relating to net operating loss carryforwards generated in periods prior to March
31, 2006. The Company has elected to retain its existing accounting policy with
respect to the treatment of interest and penalties attributable to income taxes
in accordance with ASC 740, and continues to reflect interest and penalties
attributable to income taxes, to the extent they arise, as a component of its
income tax provision or benefit as well as its outstanding income tax assets and
liabilities. The Company believes that its income tax positions and deductions
would be sustained on audit and does not anticipate any adjustments, other than
those identified above that would result in a material change to its financial
position.
Note 9. Segment and Geographic
Information
The
Company is organized primarily on the basis of operating units which are
segregated by geography, United States (“U.S.”), Europe and Rest of the World
(“Europe/ROW”) and Mexico.
The
following tables present information about reportable segments (in
thousands):
|
Three months ended December 31,
2009
|
|
U.S.
|
|
|
Europe/
ROW
|
|
|
Mexico
|
|
|
Total
|
|
|
Product
revenues
|
|
$ |
307 |
|
|
$ |
172 |
|
|
$ |
878 |
|
|
$ |
1,357 |
|
|
Service
revenues
|
|
|
256 |
|
|
|
— |
|
|
|
— |
|
|
|
256 |
|
|
Total
revenues
|
|
|
563 |
|
|
|
172 |
|
|
|
878 |
|
|
|
1,613 |
|
|
Depreciation
and amortization expense
|
|
|
68 |
|
|
|
3 |
|
|
|
23 |
|
|
|
94 |
|
|
Profit
(loss) from operations
|
|
|
(1,890 |
) |
|
|
(127 |
) |
|
|
12 |
|
|
|
(2,005 |
) |
|
Interest
expense
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2 |
) |
|
Interest
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
2008
|
|
U.S.
|
|
|
Europe/
ROW
|
|
|
Mexico
|
|
|
Total
|
|
|
Product
revenues
|
|
$ |
85 |
|
|
$ |
114 |
|
|
$ |
800 |
|
|
$ |
999 |
|
|
Service
revenues
|
|
|
222 |
|
|
|
— |
|
|
|
— |
|
|
|
222 |
|
|
Total
revenues
|
|
|
307 |
|
|
|
114 |
|
|
|
800 |
|
|
|
1,221 |
|
|
Depreciation
and amortization expense
|
|
|
95 |
|
|
|
54 |
|
|
|
25 |
|
|
|
174 |
|
|
Loss
from operations
|
|
|
(2,948 |
) |
|
|
(155 |
) |
|
|
(37 |
) |
|
|
(3,140 |
) |
|
Interest
expense
|
|
|
(113 |
) |
|
|
— |
|
|
|
— |
|
|
|
(113 |
) |
|
Interest
income
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
Nine months ended December 31,
2009
|
|
U.S.
|
|
|
Europe/
ROW
|
|
|
Mexico
|
|
|
Total
|
|
|
Product
revenues
|
|
$ |
594 |
|
|
$ |
757 |
|
|
$ |
2,976 |
|
|
$ |
4,327 |
|
|
Service
revenues
|
|
|
805 |
|
|
|
— |
|
|
|
— |
|
|
|
805 |
|
|
Total
revenues
|
|
|
1,399 |
|
|
|
757 |
|
|
|
2,976 |
|
|
|
5,132 |
|
|
Depreciation
and amortization expense
|
|
|
227 |
|
|
|
38 |
|
|
|
67 |
|
|
|
332 |
|
|
Profit
(loss) from operations
|
|
|
(6,838 |
) |
|
|
(149 |
) |
|
|
426 |
|
|
|
(6,561 |
) |
|
Interest
expense
|
|
|
(9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(9 |
) |
|
Interest
income
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Nine months ended December 31,
2008
|
|
U.S.
|
|
|
Europe/
ROW
|
|
|
Mexico
|
|
|
Total
|
|
|
Product
revenues
|
|
$ |
217 |
|
|
$ |
532 |
|
|
$ |
2,469 |
|
|
$ |
3,218 |
|
|
Service
revenues
|
|
|
695 |
|
|
|
— |
|
|
|
— |
|
|
|
695 |
|
|
Total
revenues
|
|
|
912 |
|
|
|
532 |
|
|
|
2,469 |
|
|
|
3,913 |
|
|
Depreciation
and amortization expense
|
|
|
301 |
|
|
|
176 |
|
|
|
140 |
|
|
|
617 |
|
|
Profit
(loss) from operations
|
|
|
(14,464 |
) |
|
|
(488 |
) |
|
|
(107 |
) |
|
|
(15,059 |
) |
|
Interest
expense
|
|
|
(424 |
) |
|
|
— |
|
|
|
— |
|
|
|
(424 |
) |
|
Interest
income
|
|
|
149 |
|
|
|
— |
|
|
|
— |
|
|
|
149 |
|
Sales by
geography reported in the Europe/ROW segment is as follows (in
thousands):
|
|
|
Three
Months
Ended
December 31,
|
|
|
Nine
Months
Ended
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
India
|
|
$ |
39 |
|
|
$ |
30 |
|
|
$ |
118 |
|
|
$ |
90 |
|
|
China
|
|
|
— |
|
|
|
— |
|
|
|
209 |
|
|
|
79 |
|
|
Europe
and other
|
|
|
133 |
|
|
|
84 |
|
|
|
430 |
|
|
|
363 |
|
|
Total
Europe/ROW
|
|
$ |
172 |
|
|
$ |
114 |
|
|
$ |
757 |
|
|
$ |
532 |
|
The
following table shows property and equipment balances by segment (in
thousands):
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
|
U.S.
|
|
$ |
988 |
|
|
$ |
931 |
|
|
Europe/ROW
|
|
|
38 |
|
|
|
322 |
|
|
Mexico
|
|
|
192 |
|
|
|
179 |
|
|
|
|
$ |
1,218 |
|
|
$ |
1,432 |
|
The
following table shows total asset balances by segment (in
thousands):
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
|
U.S.
|
|
$ |
6,780 |
|
|
$ |
3,543 |
|
|
Europe/ROW
|
|
|
324 |
|
|
|
841 |
|
|
Mexico
|
|
|
1,472 |
|
|
|
1,063 |
|
|
|
|
$ |
8,576 |
|
|
$ |
5,447 |
|
Note 10. Subsequent
Events
On
January 28, 2010, the Company’s Board of Directors approved the issuance of
17,500 shares of the common stock to a consultant and 21,000 shares of common
stock to settle a $41,000 outstanding vendor obligation. The
consultant shares will be issued as they are earned. The vendor
shares were issued on February 9, 2010.
On
February 10, 2010, the Company’s Compensation Committee approved an increase to
its Chief Operating Officer’s annual salary to $300,000 and granted its Chief
Operating Officer a $23,000 cash bonus. Additionally, on February 10,
2010, the Company’s Chief Operating Officer was granted 125,000 stock options at
an exercise price of $1.94, the options vest over three years and expire ten
years from the grant date.
On
February 10, 2010, the Company’s director Mr. Robert Burlingame resigned from
the Board of Directors. Mr. Burlingame will continue to be involved
with the Company through both his ownership of Innovacyn, Inc. and as a
significant shareholder.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The following discussion of our
financial condition and results of operations should be read in
conjunction with the condensed consolidated financial statements and notes to
those statements included elsewhere in this Quarterly Report on Form 10-Q as of
December 31, 2009 and our audited consolidated financial statements
for the year ended March 31, 2009 included in our report on Form 10-K, that was
filed with the Securities and Exchange Commission on June 11,
2009.
This report contains forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995. When used in this report, the words “expects,” “anticipates,”
“suggests,” “believes,” “intends,” “estimates,” “plans,” “projects,” “continue,”
“ongoing,” “potential,” “expect,” “predict,” “believe,” “intend,” “may,” “will,”
“should,” “could,” “would” and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are
subject to risks and uncertainties that could cause our actual results to
differ materially from those projected. These risks and uncertainties include, but
are not limited to the risks described in our Annual Report on Form 10-K
including our ability to develop and commercialize new products; the
risks in obtaining patient enrollment for our studies; the risk of unanticipated
delays in research and development efforts; the risk that we may not obtain
reimbursement for our existing test and any future products we may develop; the
risks and uncertainties associated with the regulation of our products by the
FDA; our ability to compete against third parties; our ability to obtain
capital when needed; our history of operating losses; the risks associated with
protecting our intellectual property; and the additional risks set forth under
Part II, Item 1A, “Risk Factors,” included in this Quarterly Report on Form 10-Q
as well s other risks disclosed in our SEC filings from time to time. These
forward-looking statements speak only as of the date hereof. We expressly
disclaim any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based, except as required by
law.
Our Business
We
currently develop, manufacture and market, a family of products for tissue care
markets in wound care and dermatology. Some of these products are intended to
prevent and treat infections in chronic and acute wounds while concurrently
enhancing wound healing through modes of action unrelated to the treatment of
infection. Infection is a serious potential complication in both chronic and
acute wounds, and controlling infection is a critical step in wound healing.
Other products are designed to address the dermatology market to reduce the
underlying itch, rash and the amount of bacteria. Our platform technology,
called Microcyn®, is a
proprietary solution of electrically charged oxychlorine small molecules designed to significantly reduce the
need for antibiotics as it reduces infections. These include
viruses, fungi, spores and antibiotic-resistant strains of bacteria, such as
Methicillin-resistant Staphylococcus aureus, or
MRSA, and Vancomycin-resistant Enterococcus, or
VRE.
In the
United States our device products have received five FDA clearances as a 510(k)
medical device for the following summary indications: 1) Moistening and
lubricating absorbent wound dressings for traumatic wounds requiring a
prescription: 2) Moistening and debriding acute and chronic dermal lesions
requiring a prescription: 3) Moistening absorbent wound dressings and
cleaning minor cuts as an over the counter product: 4) Management of
exuding wounds such as leg ulcers, pressure ulcers, diabetic ulcers and for the
management of mechanically or surgically debridement of wounds in a gel form and
required as a prescription: 5) Debridement of wounds, such as stage I-IV
pressure ulcers, diabetic foot ulcers, post surgical wounds, first- and
second-degree burns, grafted and donor sites, which can kill listed bacteria
such as MRSA & VRE in-vitro and available as a prescription. We do not
have the necessary regulatory clearance or approval to market Microcyn in the
U.S. as a medical device for an antimicrobial or wound healing indication.
In the future we expect to apply with the FDA for clearance as an antimicrobial
in a liquid and a gel form and as conducive to wound healing via a 510(k)
medical clearance. We do not have the necessary regulatory approvals to market
Microcyn in the United States as a drug.
Outside
the United States our product has a CE Mark device approval in Europe for
debriding, irrigating and moistening acute and chronic wounds in comprehensive
wound treatment by reducing microbial load and creating a moist environment. In
Mexico we have a drug approval as an antiseptic for treatment of wounds and
infected areas. In India our product has a drug license for cleaning and
debriding in wound management, while in China we received a medical device
approval by the State Food and Drug Administration or SFDA, for reducing the
propagation of microbes in wounds and creating a moist environment for wound
healing.
While in
the U.S. we do not have the necessary regulatory clearance for an antimicrobial
or wound healing indication, clinical and laboratory testing we conducted in
connection with our submissions to the FDA, as well as physician clinical
studies and scientific papers, suggest that our Microcyn-based product may help
reduce a wide range of pathogens from acute and chronic wounds while curing or
improving infection and concurrently enhancing wound healing through modes of
action unrelated to the treatment of infection. These physician clinical studies
suggest that our Microcyn-based products are safe, easy to use and
complementary to many existing treatment methods in wound care. Physician
clinical studies and usage in the United States suggest that our 510(k) product
may shorten hospital stays, lower aggregate patient care costs and, in certain
cases, reduce the need for systemic antibiotics. We are also pursuing the use of
our Microcyn platform technology in other markets outside of wound care,
including in the respiratory, ophthalmology, dental, animal healthcare and
dermatology markets.
In 2005,
chronic and acute wound care represented an aggregate of $9.6 billion in
global product sales, of which $3.3 billion was spent for the treatment of
skin ulcers, $1.6 billion to treat burns and $4.7 billion for the
treatment of surgical and trauma wounds, according to Kalorama Information, a
life sciences market research firm. In the Kalorama Information we believe the
markets most related to our product involve approximately $1.3 billion for
the treatment of skin ulcers, $300 million for the treatment of burns and
$700 million for the treatment of surgical and trauma wounds. Common
methods of controlling infection, including topical antiseptics and antibiotics,
have proven to be only moderately effective in combating infection in the wound
bed. However, topical antiseptics tend to inhibit the healing process due to
their toxicity and may require specialized preparation or handling. Antibiotics
can lead to the emergence of resistant bacteria, such as MRSA and VRE. Systemic
antibiotics may be less effective in controlling infection in patients with
disorders affecting circulation, such as diabetes, which are commonly associated
with chronic wounds. As a result, no single treatment is used across all types
of wounds and stages of healing.
We
believe Microcyn is the only known stable, anti-infective therapeutic available
in the world today that simultaneously cures or improves infection while also
promoting wound healing through increased blood flow to the wound bed and
reduction of inflammation. Also, we believe Microcyn provides significant
advantages over current methods of care in the treatment of a wide range of
chronic and acute wounds throughout all stages of treatment. These stages
include cleaning, debridement, prevention and treatment of infections and wound
healing. We believe that unlike antibiotics, antiseptics, growth regulators and
other advanced wound care products, Microcyn is the only stable wound care
solution that is safe as saline, and also cures infection while simultaneously
accelerating wound healing. Also, unlike most antibiotics, we believe Microcyn
does not target specific strains of bacteria, a practice which has been shown to
promote the development of resistant bacteria. In addition, our products are
shelf stable, require no special preparation and are easy to
use.
Our goal
is to define and provide an improved standard of care in the treatment of open
wounds, infections, skin afflictions, oral afflictions, respiratory infections,
allergies, eye infections and animal wounds/infections. We currently have, and
intend to seek additional, regulatory clearances and approvals to market our
Microcyn-based products worldwide. In July 2004, we began selling Microcyn in
Mexico after receiving approval from the Mexican Ministry of Health, or MOH, for
the use of Microcyn as an antiseptic, disinfectant and sterilant. Since then,
physicians in the United States, Europe, India, Pakistan, China and Mexico have
conducted more than 30 physician clinical studies assessing Microcyn’s use in
the treatment of infections in a variety of wound types, including hard-to-treat
wounds such as diabetic ulcers and burns. Most of these studies were not
intended to be rigorously designed or controlled clinical trials and, as such,
did not have all of the controls required for clinical trials used to support a
new drug application, or NDA, submission to the FDA. A number of these studies
did not include blinding, randomization, predefined clinical end points, use of
placebo and active control groups or U.S. good clinical practices
requirements. We used the data generated from some of these studies to support
our application for the CE Mark, or European Union certification, for wound
cleaning and reduction of microbial load. We received the CE Mark in November
2004 and additional international approvals in China, Canada, Mexico and India.
Microcyn has also received five FDA 510(k) clearances for use as a medical
device in wound cleaning, or debridement, lubricating, moistening and dressing,
including traumatic wounds and acute and chronic dermal lesions. Most recently,
on May 27, 2009, we received a 510(k) clearance from the FDA to market our
Microcyn Skin and Wound HydroGel as both a prescription and over-the-counter
formulation. Additionally, on June 4, 2009, we received an expanded 510(k)
label clearance from the FDA to market our Microcyn Skin and Wound Cleanser with
preservatives as both a prescription and over-the-counter formulation. This
prescription product is indicated for use by health care professionals to manage
the debridement of wounds such as stage I-IV pressure ulcers, diabetic foot
ulcers, post-surgical wounds, first- and second-degree burns, grafted and donor
sites. This clearance also allows us to promote the in-vitro
eradication of dangerous pathogens, including MRSA and VRE, to a six-log
reduction in just 30 seconds.
In the
fourth quarter of 2007, we completed a Phase II randomized clinical
trial according to guidelines of Infectious Disease Society of America,
which was designed to evaluate the effectiveness of Microcyn in mildly infected
diabetic foot ulcers with the primary endpoint of clinical cure or improvement
in signs and symptoms of infection. We used 15 clinical sites and enrolled 48
evaluable patients in three arms, using Microcyn alone, Microcyn plus an oral
antibiotic and saline plus an oral antibiotic. We announced the results of our
Phase II trial in March 2008. In the clinically evaluable population of the
study, the clinical success rate at visit four (test of cure) for patients
treated with Microcyn alone was 93.3% compared to 56.3% for the Levofloxacin
plus saline-treated patients. This study was not statistically powered, but the
high clinical success rate (93.3%) and the p-value (0.033) would suggest the
difference is meaningfully positive for the Microcyn-treated patients. Also, for
this set of data, the 95.0% confidence interval for the Microcyn-only arm ranged
from 80.7% to 100.0% while the 95.0% confidence interval for the Levofloxacin
and saline arm ranged from 31.9% to 80.6%; the confidence intervals do not
overlap, thus indicating a favorable clinical success for Microcyn compared to
Levofloxacin. At visit three (end of treatment) the clinical success rate for
patients treated with Microcyn alone was 77.8% compared to 61.1% for the
Levofloxacin plus saline-treated patients.
We
conducted a review meeting with the FDA in August 2008 to discuss the results of
our Phase II trial and our future clinical program. Following a review of
the Phase II data on Microcyn Technology for the treatment of mildly
infected diabetic foot ulcers, the FDA agreed:
|
|
•
|
We
could move forward into the pivotal phase of our U.S. clinical
program for Microcyn Technology;
|
|
|
•
|
There
were no safety issues relative to moving into this next clinical phase
immediately, and carcinogenicity studies would not be required for product
approval; and
|
|
|
•
|
Clinical
requirements for efficacy and safety for a new drug application, or NDA,
would be appropriately accounted for within the agreed upon pivotal trial
designs.
|
Two
pivotal clinical trials must be completed for submission to the FDA of an NDA,
for the treatment of mildly infected diabetic foot ulcers. Commencement of these
trials will be dependent upon the support of a strategic partner. In the event
that we successfully complete clinical trials and obtain drug approval from the
FDA, we may seek clearance for treatment of other types of wounds. We are
currently pursuing strategic partnerships to assess potential applications for
Microcyn in several other markets and therapeutic categories, including
respiratory, ophthalmology, dermatology, dental and veterinary markets.
Obtaining FDA approval or other governmental approvals will be required for any
potential new products or new indications.
We
currently make Microcyn available, both as a prescription and over-the-counter
product, under our five 510(k) clearances in the United States, through Advocos,
a specialty U.S. contract sales organization as well as our own nationwide
independent “professional entrepreneur” sales teams that are currently being
recruited. In the second calendar quarter of 2009, we expanded our sales effort,
initially focused on podiatrists, to include wound care centers, hospitals,
nursing homes, urgent care clinics and home healthcare.
On
January 26, 2009, we announced a strategic revenue-sharing partnership with
V&M Industries, Inc. At the time we entered into the partnership with
V&M Industries it was owned by one of our directors. Pursuant to this
agreement, we granted V&M Industries, Inc., now known as Innovacyn, Inc.,
exclusive rights to market the Microcyn Technology in the North American animal
healthcare market. As part of this agreement, we will not incur marketing or
sales expenses, but will share in all revenues. On September 15,
2009, the agreement with Innovacyn, Inc. was modified to include a non-exclusive
right to sell the Microcyn OTC into the consumer human healthcare market on
terms similar to those in the original agreement.
Our
partner, Union Springs Pharmaceuticals, a subsidiary of the Drug Enhancement
Company of America, or DECA, has marketed MyClyns as an over-the-counter “first
responder” pen application with Microcyn as its key ingredient. Since
January 2008, Union Springs Pharmaceuticals has marketed MyClyns in the United
States into such professional markets as police, fire, military and
EMTs. Recently, they launched a germ-protection spray for consumers
into the retail market with national distribution through drug and grocery
stores supported by a national advertising campaign. Recently, they
launched a germ-protection spray for consumers into the retail market with
national distribution through drug and grocery stores supported by a national
advertising campaign.
We have
commercialized a Microcyn hydrogel which received a 510(k) approval in the
U.S. We intend to pursue additional approvals in Europe, China, India and
Mexico and we will initiate commercialization upon obtaining these
approvals.
We
currently rely on exclusive agreements with country-specific distributors for
the sale of Microcyn-based products in Europe, which sell our product into
Germany, Italy, Netherlands, Slovakia and Sweden. In Mexico, we sell
Microcyn through a network of distributors and through a contract sales force
dedicated exclusively to selling Microcyn, including salespeople, nurses and
clinical support staff. In India, we sell through Alkem, the fifth largest
pharmaceutical company in India. The first full year of Microcyn product
distribution in India was in 2008. In China, we signed a distribution agreement
with China Bao Tai, which secured marketing approval from the SFDA in March
2008. China Bao Tai is distributing Microcyn-based products to hospitals,
doctors and clinics. China Bao Tai and its distribution partners are in the
process of providing product broadly to many hospitals and doctors throughout
many provinces in China for completion of trials in anticipation of a product
launch after pricing registration have been obtained in 2010.
We also
operate a microbiology contract testing laboratory division that provides
consulting and laboratory services to medical companies that design and
manufacture biomedical devices and drugs, as well as testing on our products and
potential products. Our testing laboratory complies with U.S. good manufacturing
practices and quality systems regulation.
Comparison
of Three Months Ended December 31, 2009 and 2008
Revenues
Total
revenues were $1,613,000 during the quarter ended December 31, 2009 compared to
$1,221,000 in the prior year period. Product revenues increased $358,000 due to
higher sales in the U.S., Europe, Mexico, India and Singapore. Product growth
worldwide was 36% with the largest increases in the U.S. and
Europe/ROW. Revenue in Mexico increased 10% over the prior year
period. Sales of our 240-milliliter presentation, which is primarily
sold to pharmacies in Mexico, increased 15% over the prior year to a monthly
average of 33,000 units with a combination of both unit growth and higher
selling prices. Sales to hospitals decreased 4% as a result of lower
unit sales which was partially offset by higher average selling
prices. The peso to U.S. dollar exchange rate had a negligible impact
on the sales results when compared to the prior year period. Europe/ROW revenue
increased $58,000, up 51% over the prior year period, due to higher sales in
Europe, India and Singapore. The normal quarterly shipment to China of $150,000
will be shipped and recognized in the next quarter. Product revenue in the U.S.
increased $222,000 with strong increases in human and animal wound care, mostly
related to television advertising and sales initiatives sponsored by
Innovacyn
The
following table shows our product revenues by geographic region:
|
|
|
Three Months
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase
|
|
|
Increase
|
|
|
U.S.
|
|
$ |
307,000 |
|
|
$ |
85,000 |
|
|
$ |
222,000 |
|
|
|
261 |
% |
|
Europe/ROW
|
|
|
172,000 |
|
|
|
114,000 |
|
|
|
58,000 |
|
|
|
51 |
% |
|
Mexico
|
|
|
878,000 |
|
|
|
800,000 |
|
|
|
78,000 |
|
|
|
10 |
% |
|
Total
|
|
$ |
1,357,000 |
|
|
$ |
999,000 |
|
|
$ |
358,000 |
|
|
|
36 |
% |
Service
revenue increased $34,000 when compared to the prior year period due to an
increase in the number of tests provided by our services business.
Gross
Profit
We
reported gross profit from our Microcyn products business of $621,000, or 46% of
product revenues, during the three months ended December 31, 2009, compared to a
gross profit of $686,000, or 69%, in the prior year period. The decrease in
gross margin was primarily due to increased shipping costs to Europe and higher
manufacturing costs in U.S. as we were manufacturing in two U.S. locations
during the current quarter. We also incurred losses due to the write
off of excess and obsolete inventory of $74,000. Mexico’s margins
were 80% during the quarter ended December 31, 2009, compared to 77% in the
prior year period.
Research
and Development Expense
Research
and development expense declined $561,000, or 60%, to $372,000 for the three
months ended December 31, 2009, compared to $933,000 in the prior year period.
Most of the decrease was attributable to the reduction in clinical personnel and
related expenses. As a result of shifting our strategy to find a strategic
partner to conduct a Phase III trial, we significantly reduced the number of
people in research and development and clinical activities.
We expect
that our research and development expense will remain fairly flat over the next
few quarters.
Selling,
General and Administrative Expense
Selling,
general and administrative expense decreased $596,000, or 20%, to $2,324,000
during the three months ended December 31, 2009, from $2,920,000 during the
three months ended December 31, 2008. Primarily, this decrease was due to an
overall reduction in headcount and related expenses, and lower legal and
accounting fees. These decreases were partially offset by higher sales and
marketing expenses associated with our wound care product launch in U.S. and
Mexico.
We expect
selling, general and administrative expenses to grow slightly in future periods
as we spend more money on expanding sales in the U.S. market.
Interest
income and expense and other income and expense, net
Interest
expense decreased $111,000 to $2,000 for the three months ended December 31,
2009, from $113,000 in the prior year period, primarily due to decreased
interest payments on debt over the prior period. Total outstanding debt
decreased to $185,000 at December 31, 2009, from $335,000 at March 31,
2009. Interest income decreased $17,000 from the prior year period, primarily
due to a decline in interest paid on our interest bearing cash
balances.
Other
income and expense, net increased $120,000 to net other income of $36,000 for
the three months ended December 31, 2009, from net other expense of $84,000 for
the same period last year. The change in other income and expense,
net was primarily related to unrealized foreign exchange gains and losses on
intercompany transactions.
Derivative
liability
During
the three months ended December 31, 2009 we incurred a reduction in our
derivative liabilities of $625,000 and as a result we recorded this amount as a
gain. For the three months ended December 31, 2008 we did not record a loss or
gain as it was not required.
Net
Loss
Net loss
for the three months ended December 31, 2009 was $1,346,000, down $1,974,000
from $3,320,000 for the same period in the prior year. Stock compensation
expense for the quarter ended December 31, 2009 and 2008 was $236,000 and
$200,000, respectively.
Comparison
of Nine Months Ended December 31, 2009 and 2008
Revenues
Total
revenues were $5,132,000 during the nine months ended December 31, 2009, up 31%,
compared to $3,913,000 in the prior year period. Product revenue increased
$1,109,000, or 34%, compared to the same period last year primarily due to
higher sales in the U.S., Europe, and Mexico. Adjusted for the 18%
drop in the value of the peso during the nine months ended December 31, 2009,
product growth in Mexico would have been 41% and product growth worldwide would
have been 51%. Increased revenue related to the sale of our
240-milliliter presentation in Mexico, sold primarily to pharmacies, was the
result of increased demand from the swine flu epidemic in Mexico and normal
sales growth. Unit sales of our 240-milliliter presentation in Mexico
for the nine months ended December 31, 2009, increased 37% to a monthly average
of 42,000 units, up from 30,000 in the same period last year; unit sales of our
5-liter presentation increased 31%, partially offset by lower selling
prices. Europe/ROW revenue increased $225,000, up 42%, over the prior
year with higher sales from China, India, Netherlands, Slovakia and
Singapore. Product revenue in the U.S. increased $377,000 with strong
increases in human and animal wound care, primarily related to television
advertising and other sales initiatives sponsored by Innovacyn.
The
following table shows our product revenues by geographic region (in
thousands):
|
|
|
Nine Months
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Increase
|
|
|
Increase
|
|
|
U.S.
|
|
$ |
594,000 |
|
|
$ |
217,000 |
|
|
$ |
377,000 |
|
|
|
174 |
% |
|
Europe/ROW
|
|
|
757,000 |
|
|
|
532,000 |
|
|
|
225,000 |
|
|
|
42 |
% |
|
Mexico
|
|
|
2,976,000 |
|
|
|
2,469,000 |
|
|
|
507,000 |
|
|
|
21 |
% |
|
Total
|
|
$ |
4,327,000 |
|
|
$ |
3,218,000 |
|
|
$ |
1,109,000 |
|
|
|
34 |
% |
Service
revenue was higher by $110,000 when compared to the same period last year due to
an increase in the number of tests provided by our services
business.
Gross
Profit
We
reported gross profit from our Microcyn products business of $2,463,000, or 57%
of product revenues, during the nine months ended December 31, 2009, compared to
a gross profit of $2,021,000, or 63%, in the prior year period. Mexico’s margins
improved to 80% during the nine months ended December 31, 2009, compared to 74%
in the prior year period with a higher unit volume in the first quarter of the
current period due to increased sales related to the H1N1 epidemic. During the
nine months ended December 31, 2009, gross margins in Europe and U.S. are
relatively low as we have been transferring our manufacturing from Europe to the
U.S., sustaining costs in multiple locations, and incurring severance and higher
shipping costs in the European cost of goods sold.
Research
and Development Expense
Research
and development expense declined $3,945,000, or 70%, to $1,676,000 for the nine
months ended December 31, 2009, compared to $5,621,000 in the prior year period.
Most of the decrease was attributed to the elimination of the larger clinical
team and related expenses during the nine months ended December 31, 2008, which
supported the completion of the Phase II clinical trial. As a result of
shifting our strategy to finding a strategic partner to conduct a Phase III
trial, we significantly reduced the number of people in research and development
and clinical activities.
We expect
that our research and development expense will remain fairly flat over the next
few quarters.
Selling,
General and Administrative Expense
Selling,
general and administrative expense decreased $4,016,000, or 35%, to $7,494,000
during the nine months ended December 31, 2009, from $11,510,000 during the nine
months ended December 31, 2008. Primarily, this decrease was due to a $968,000
reduction in stock compensation charges, lower legal and accounting fees and an
overall reduction in headcount and related expenses. These decreases were
partially offset by higher sales and marketing expenses associated with our
wound care product launch in the U.S. and Mexico.
We expect
selling, general and administrative expenses to grow slightly in future periods
as we spend more money on expanding sales in the U.S. market.
Interest
income and expense and other income and expense, net
Interest
expense decreased $415,000 to $9,000 for the nine months ended December 31,
2009, from $424,000 in the prior year period, due to the decreased interest
payments on debt over the prior year period and $304,000 related to the
amortization of debt issue costs in the prior year period. Total outstanding
debt decreased to $185,000 at December 31, 2009, from $335,000 at March 31,
2009. Interest income decreased $148,000 from the prior year period, primarily
due to a decline in our interest bearing cash balances.
Other
income and expense, net increased $18,000 to net other expense of $79,000 for
the nine months ended December 31, 2009, from net other expense of $97,000 for
the same period last year. The change in other income and expense,
net was primarily related to unrealized foreign exchange gains and losses on
intercompany transactions.
Derivative
liability
During the nine months ended December
31, 2009 we incurred an increase in our derivative liabilities of $132,000 and
as a result we recorded this amount as expense for the period. For
the nine months ended December 31, 2008 we did not record a loss or gain as it
was not required.
Net
Loss
Net loss
for the nine months ended December 31, 2009 was $6,780,000, down $8,651,000 from
$15,431,000 for the same period in the prior year. Stock compensation expense
for the nine months ended December 31, 2009 and 2008 were $1,143,000 and
$2,111,000, respectively. Also, the loss related to our
derivative liabilities of $132,000 was a non-cash charge.
Liquidity
and Capital Resources
At
December 31, 2009, our accumulated deficit amounted to $115,585,000. We had
working capital of $5,165,000 as of December 31, 2009. We
currently anticipate that our cash and cash equivalents, the proceeds we
received from the July 30, 2009 registered direct offering, proceeds we
received from the exercise of common stock purchase warrants and option
exercises and revenues we expect to generate will be sufficient to meet our
anticipated cash requirements to continue sales and marketing and some research
and development through December 31, 2010. However, in order to execute our
Microcyn product development strategy and to penetrate new and existing markets,
we may need to raise additional funds, through public or private equity
offerings, debt financings, corporate collaborations or other means. We have
implemented cost cutting initiatives while continuing to increase revenue in an
effort to reach cash breakeven.
We
believe that we have access to capital resources through possible public or
private equity offerings, debt financings, corporate collaborations or other
means; however, we have not secured any commitment for new financing at this
time, nor can we provide any assurance that new financing will be available on
commercially acceptable terms, if needed. If we are unable to secure additional
capital, we may be required to curtail our research and development initiatives
and take additional measures to reduce costs in order to conserve
cash.
We
believe that we have access to capital resources through possible public or
private equity offerings, debt financings, corporate collaborations or other
means; however, we have not secured any commitment for new financing at this
time, nor can we provide any assurance that new financing will be available on
commercially acceptable terms, if needed. If we are unable to secure additional
capital, we may be required to curtail our research and development initiatives
and take additional measures to reduce costs in order to conserve
cash.
Our
future funding requirements will depend on many factors, including:
|
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•
|
the
scope, rate of progress and cost of our research and development
activities;
|
|
|
•
|
future
clinical trial results;
|
|
|
•
|
the
terms and timing of any collaborative, licensing and other arrangements
that we may establish;
|
|
|
•
|
the
cost and timing of regulatory
approvals;
|
|
|
•
|
the
cost and delays in product development as a result of any changes in
regulatory oversight applicable to our
products;
|
|
|
•
|
the
cost and timing of establishing sales, marketing and distribution
capabilities;
|
|
|
•
|
the
effect of competing technological and market
developments;
|
|
|
•
|
the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights;
and
|
|
|
•
|
the
extent to which we acquire or invest in businesses, products and
technologies.
|
Sources
of Liquidity
As of
December 31, 2009, we had unrestricted cash and cash equivalents of $5,158,000.
Since our inception, substantially all of our operations have been financed
through sales of equity securities. Other sources of financing that we have used
to date include our revenues, as well as various loans.
Since our
inception, substantially all of our operations have been financed through the
sale of $112,048,000 (net proceeds) of our common and convertible preferred
stock. This includes:
|
|
·
|
net
proceeds $21,936,000 raised in our initial public offering on
January 30, 2007;
|
|
|
·
|
net
proceeds of $9,124,000 raised in a private placement of common shares on
August 13, 2007;
|
|
|
·
|
net
proceeds of $12,613,000 raised through a registered direct placement from
March 31, 2008 to April 1,
2008;
|
|
|
·
|
net
proceeds of $1,514,000 raised through a private placement on
February 6, 2009;
|
|
|
·
|
net
proceeds of $948,000 from a private placement on February 24,
2009;
|
|
|
·
|
net
proceeds of $2,000,000 from a private placement on June 1,
2009;
|
|
|
·
|
net
proceeds of $5,411,000 from a registered direct offering on July 30, 2009;
and
|
|
|
·
|
$1,576,000
received from the exercise of common stock purchase warrants and options
during the nine months ended December 31,
2009.
|
In June
2006, we entered into a loan and security agreement with a financial institution
to borrow a maximum of $5,000,000. Under this facility we borrowed $4,182,000.
The loan was repaid in full at March 31, 2009. We no longer have
the ability to borrow against this facility.
Cash
Flows
As of
December 31, 2009, we had cash and cash equivalents of $5,158,000, compared to
$1,921,000 at March 31, 2009.
Net cash
used in operating activities during the nine months ended December 31, 2009 was
$5,101,000 primarily due to the $6,780,000 net loss for the period. The use
of cash was offset in part by non-cash charges during the year ended December
31, 2009, including $132,000 loss on the fair value of warrants, $1,143,000 of
stock-based compensation, and $332,000 of depreciation and
amortization.
Net cash
used in operating activities during the nine months ended December 31, 2008 was
$14,592,000 primarily due to the $15,431,000 net loss for the period, and to a
$1,285,000 decrease in accounts payable, primarily the result of payments
made for the placement fee of our registered direct fundraising in
March 2008 that were outstanding at March 31, 2008. The use of cash
was offset in part by non-cash charges during the nine months ended December 31,
2008, including $2,111,000 of stock-based compensation, $617,000 of depreciation
and amortization and $304,000 of non-cash interest expense, $219,000 of loss on
the disposal of capital equipment.
Net cash
used in investing activities was $121,000 and $325,000 for the nine months ended
December 31, 2009 and 2008, respectively, primarily for the purchase of
equipment.
Net cash
provided by financing activities was $8,426,000 for the nine months ended
December 31, 2009. We received net proceeds from the sale of common stock during
this period of $7,155,000. Additionally, we received proceeds of
$1,576,000 related to the exercise of common stock purchase warrants and stock
options. Net cash used in financing activities was $1,411,000 for the
nine months ended December 31, 2008. This involved debt payments totaling
$1,430,000 and $36,000 of net funds received in connection with the issuance of
common stock.
Operating Capital and Capital
Expenditure Requirements
We
incurred a net loss of $6,780,000 for the nine months ended December 31, 2009.
At December 31, 2009 our accumulated deficit amounted to $115,585,000. At
December 31, 2009, our working capital amounted to $5,165,000.
We
currently anticipate that our cash and cash equivalents, the proceeds we
received from the July 30, 2009 registered direct offering, proceeds we
received from the exercise of common stock purchase warrants and option
exercises and revenues we expect to generate will be sufficient to meet our
anticipated cash requirements to continue sales and marketing and some research
and development through December 31, 2010. However, in order to execute our
Microcyn product development strategy and to penetrate new and existing markets,
we may need to raise additional funds, through public or private equity
offerings, debt financings, corporate collaborations or other means. We have
implemented cost cutting initiatives while continuing to increase revenue in an
effort to reach cash breakeven.
We
believe that we have access to capital resources through possible public or
private equity offerings, debt financings, corporate collaborations or other
means; however, we have not secured any commitment for new financing at this
time, nor can we provide any assurance that new financing will be available on
commercially acceptable terms, if needed. If we are unable to secure additional
capital, we may be required to curtail our research and development initiatives
and take additional measures to reduce costs in order to conserve
cash.
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the dates of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates. These estimates and assumptions include reserves and write-downs
related to receivables and inventories, the recoverability of long-term assets,
deferred taxes and related valuation allowances and valuation of equity
instruments.
Off-Balance
Sheet Transactions
We
currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
As a
smaller reporting company, we are not required to provide the information
required by this Item.
Item
4. Controls and Procedures
(a) Evaluation of
Disclosure Controls and Procedures. We maintain “disclosure controls and
procedures,” as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, or Exchange Act, that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met. Our disclosure
controls and procedures have been designed to meet reasonable assurance
standards. Additionally, in designing disclosure controls and procedures, our
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and procedures. The
design of any disclosure controls and procedures also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective at the
reasonable assurance level.
(b) Changes in
Internal Controls. There was no changes in our internal control over
financial reporting that occurred during the fiscal quarter ended December 31,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II — OTHER
INFORMATION
Item
1. Legal Proceedings
Our
Company, on occasion, may be involved in legal matters arising in the ordinary
course of its business. While management believes that such matters are
currently insignificant, matters arising in the ordinary course of business for
which we are or could become involved in litigation may have a material adverse
effect on its business, financial condition or results of
operations.
Item
1A. Risk Factors
The risk
factor previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended March 31, 2009, has been updated as follows:
We have a history
of losses, we expect to continue to incur losses and we may never achieve
profitability.
We
incurred a net loss of $1,346,000 and $6,780,000 for the three and nine months
ended December 31, 2009, respectively. At December 31, 2009, our accumulated
deficit amounted to $115,585,000. During the three months ended December 31,
2009, net cash used in operating activities amounted to $5,101,000. At December
31, 2009, our working capital amounted to $5,165,000. We may need to raise
additional capital from external sources. We expect to continue incurring losses
for the foreseeable future and may need to raise additional capital to pursue
product development initiatives and penetrate markets for the sale of our
products. We believe that we have access to capital resources through possible
public or private equity offerings, debt financings, corporate collaborations or
other means, however, we may not be able to raise additional capital on
acceptable terms or at all. If the economic climate in the U.S. does not improve
or continues to deteriorate, our ability to raise additional capital could be
negatively impacted. If we are unable to secure additional capital, we may be
required to curtail our research and development initiatives and take additional
measures to reduce costs in order to conserve cash.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On
December 15, 2009, we issued 9,653 shares of common stock to Advocos as
compensation for product sales services performed in connection with an
agreement between us and Advocos.
With
respect to the sale of our common stock described above, we relied on the
Section 4(2) exemption from securities registration under the federal securities
laws for transactions not involving any public offering. No advertising or
general solicitation was employed in offering the shares. The shares were sold
to accredited investors. The shares were offered for investment purposes only
and not for the purpose of resale or distribution, and the transfer thereof was
appropriately restricted by us.
Item
3. Default Upon Senior Securities
We did
not default upon any senior securities during the quarter ended December 31,
2009.
Item
4. Submission of Matters to a Vote of the Security Holders
None.
Item
5. Other Information
On
February 10, 2010, the Company’s Compensation Committee approved an increase to
its Chief Operating Officer’s annual salary to $300,000 and granted its Chief
Operating Officer a $23,000 cash bonus. Additionally, on February 10,
2010, the Company’s Chief Operating Officer was granted 125,000 stock options at
an exercise price of $1.94, the options vest over three years and expire ten
years from the grant date.
On
February 10, 2010, the Company’s director Mr. Robert Burlingame resigned from
the Board of Directors. Mr. Burlingame will continue to be involved
with the Company through both his ownership of Innovacyn, Inc. and as a
significant shareholder.
Item
6. Exhibits
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Exhibit
Number
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Description
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3.1(i)
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Restated
Certificate of Incorporation of Registrant (incorporated by reference to
the exhibit of the same number filed with the Company’s Annual Report on
Form 10-K (File No. 001-3216) for the year ended March 31,
2007).
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3.1(ii)
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Amended
and Restated Bylaws of Registrant, as amended effective June 11, 2008
(incorporated by reference to the exhibit of the same number filed with
the Company’s Annual Report on Form 10-K (File No. 001-3216) for the year
ended March 31, 2007).
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|
|
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4.1
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Specimen
Common Stock Certificate (incorporated by reference to the exhibit of the
same number filed with Registration Statement on Form S-1 (File No.
333-135584), as amended, declared effective on January 24,
2007).
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|
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4.2
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Warrant
to Purchase Series A Preferred Stock of Registrant by and between
Registrant and Venture Lending & Leasing III, Inc., dated April 21,
2004 (incorporated by reference to the exhibit of the same number filed
with Registration Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007).
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4.3
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Warrant
to Purchase Series B Preferred Stock of Registrant by and between
Registrant and Venture Lending & Leasing IV, Inc., dated June 14, 2006
(incorporated by reference to the exhibit of the same number filed with
Registration Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007).
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|
|
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4.4
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|
Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to the exhibit of the same number filed with Registration
Statement on Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007).
|
|
|
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4.5
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|
Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to the exhibit of the same number filed with Registration
Statement on Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007).
|
|
|
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4.6
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Amended
and Restated Investors Rights Agreement, effective as of September 14,
2006 (incorporated by reference to the exhibit of the same number filed
with Registration Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007).
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|
|
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4.7
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Form
of Promissory Note issued to Venture Lending & Leasing III, Inc.
(incorporated by reference to the exhibit of the same number filed with
Registration Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007).
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|
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4.8
|
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Form
of Promissory Note (Equipment and Soft Cost Loans) issued to Venture
Lending & Leasing IV, Inc. (incorporated by reference to the exhibit
of the same number filed with Registration Statement on Form S-1 (File No.
333-135584), as amended, declared effective on January 24,
2007).
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|
|
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4.9
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|
Form
of Promissory Note (Growth Capital Loans) issued to Venture Lending &
Leasing IV, Inc. (incorporated by reference to the exhibit of the same
number filed with Registration Statement on Form S-1 (File No.
333-135584), as amended, declared effective on January 24,
2007).
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|
|
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4.10
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|
Form
of Promissory Note (Working Capital Loans) issued to Venture Lending &
Leasing IV, Inc. (incorporated by reference to the exhibit of the same
number filed with Registration Statement on Form S-1 (File No.
333-135584), as amended, declared effective on January 24,
2007).
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|
|
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4.11
|
|
Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to the exhibit of the same number filed with Registration
Statement on Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007).
|
|
|
|
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4.12
|
|
Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to the exhibit of the same number filed with Registration
Statement on Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007).
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4.13
|
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Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to exhibit 10.3 to the Company’s Current Report on Form 8-K
filed August 13, 2007).
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|
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4.14
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|
Form
of Warrant to Purchase Common Stock of Registrant (incorporated by
reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed
March 28, 2008).
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4.15
|
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Form
of Common Stock Purchase Warrant for July 2009 offering (included as
exhibit 4.15 to the Form S-1 filed July 9, 2009 and incorporated herein by
reference).
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4.16
|
|
Warrant
issued to Dayl Crow, dated March 4, 2009 (included as exhibit 4.16 to the
Form 10-K filed June 11, 2009 and incorporated herein by
reference).
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31.1*
|
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Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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31.2*
|
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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32.1*#
|
|
Certification
of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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99.1*
|
|
Resignation
Letter of Director Robert Burlingame, dated February 10,
2010.
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#
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In
accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos.
33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control
Over Financial Reporting and Certification of Disclosure in Exchange Act
Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are
deemed to accompany this Form 10-Q and will not be deemed “filed” for
purposes of Section 18 of the Exchange Act. Such certifications will not
be deemed to be incorporated by reference into any filing under the
Securities Act.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Oculus Innovative Sciences,
Inc.
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Date: February
8, 2010
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By:
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/s/ Hojabr Alimi
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Hojabr
Alimi
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Its:
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Chairman
of the Board of Directors and Chief
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|
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Executive
Officer (Principal Executive Officer)
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Date: February
8, 2010
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By:
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/s/ Robert Miller
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Robert
Miller
|
|
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Its:
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Chief
Financial Officer
|
|
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(Principal
Financial Officer)
|
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