UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
| |
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended June 30, 2010
or
| |
o
|
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 þ No o
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 o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
Accelerated filer
|
Non-accelerated filer
|
Smaller reporting company
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|
o
|
o
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(Do not check if a smaller reporting company) o
|
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of
August 5, 2010 the number of shares outstanding of the registrant’s common
stock, $0.0001 par value, was 26,277,458.
OCULUS
INNOVATIVE SCIENCES, INC.
Index
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Page
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PART
I — FINANCIAL INFORMATION
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3
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Item 1. Financial
Statements
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3
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|
Condensed
Consolidated Balance Sheets
|
|
3
|
|
Condensed
Consolidated Statements of Operations
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4
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Condensed
Consolidated Statements of Cash Flows
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5
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Notes
to Condensed Consolidated Financial Statements
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6
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Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Item 3. Quantitative and
Qualitative Disclosures About Market Risk
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21
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Item 4. Controls and
Procedures
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21
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PART
II — OTHER INFORMATION
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21
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Item 1. Legal
Proceedings
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21
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Item 1A. Risk
Factors
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21
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Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds
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22
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Item 3. Defaults Upon
Senior Securities
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22
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Item 4. Removed and
Reserved
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22
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Item 5. Other
Information
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22
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Item 6.
Exhibits
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23
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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
|
|
|
June
30,
2010
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|
March
31,
2010
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|
|
|
|
(Unaudited)
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|
|
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ASSETS
|
|
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Current
assets:
|
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|
|
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|
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Cash
and cash equivalents
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|
$ |
6,667 |
|
|
$ |
6,258 |
|
|
Accounts
receivable, net
|
|
|
1,464 |
|
|
|
1,416 |
|
|
Inventories,
net
|
|
|
529 |
|
|
|
565 |
|
|
Prepaid
expenses and other current assets
|
|
|
630 |
|
|
|
811 |
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|
Total
current assets
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|
9,290 |
|
|
|
9,050 |
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|
Property
and equipment, net
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|
1,016 |
|
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|
1,108 |
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Other
assets
|
|
|
68 |
|
|
|
60 |
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Total
assets
|
|
$ |
10,374 |
|
|
$ |
10,218 |
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
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Current
liabilities:
|
|
|
|
|
|
|
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Accounts
payable
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|
$ |
826 |
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$ |
981 |
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Accrued
expenses and other current liabilities
|
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|
1,172 |
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|
1,078 |
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Current
portion of long-term debt, net of discount
|
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207 |
|
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204 |
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Derivative
liability
|
|
|
384 |
|
|
|
472 |
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Total
current liabilities
|
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|
2,589 |
|
|
|
2,735 |
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|
Deferred
revenue
|
|
|
181 |
|
|
|
328 |
|
|
Long-term
debt, net of discount, less current portion
|
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|
1,559 |
|
|
|
110 |
|
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Put
warrant liability
|
|
|
500 |
|
|
|
— |
|
|
Total
liabilities
|
|
|
4,829 |
|
|
|
3,173 |
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
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Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares
issued and outstanding at June 30, 2010 (unaudited) and March 31,
2010
|
|
|
— |
|
|
|
— |
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|
Common
stock, $0.0001 par value; 100,000,000 shares authorized, 26,277,458 and
26,161,428 shares issued and outstanding at June 30, 2010 (unaudited) and
March 31, 2010, respectively
|
|
|
3 |
|
|
|
3 |
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|
Additional
paid-in capital
|
|
|
128,044 |
|
|
|
127,067 |
|
|
Accumulated
other comprehensive loss
|
|
|
(3,090 |
) |
|
|
(2,988 |
) |
|
Accumulated
deficit
|
|
|
(119,412 |
) |
|
|
(117,037 |
) |
|
Total
stockholders’ equity
|
|
|
5,545 |
|
|
|
7,045 |
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|
Total
liabilities and stockholders’ equity
|
|
$ |
10,374 |
|
|
$ |
10,218 |
|
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(In
thousands, except per share amounts)
(Unaudited)
|
|
|
Three
Months Ended
June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
Product
|
|
$ |
2,045 |
|
|
$ |
1,567 |
|
|
Service
|
|
|
219 |
|
|
|
280 |
|
|
Total
revenues
|
|
|
2,264 |
|
|
|
1,847 |
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
696 |
|
|
|
527 |
|
|
Service
|
|
|
179 |
|
|
|
215 |
|
|
Total
cost of revenues
|
|
|
875 |
|
|
|
742 |
|
|
Gross
profit
|
|
|
1,389 |
|
|
|
1,105 |
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
396 |
|
|
|
721 |
|
|
Selling,
general and administrative
|
|
|
3,389 |
|
|
|
2,685 |
|
|
Total
operating expenses
|
|
|
3,785 |
|
|
|
3,406 |
|
|
Loss
from operations
|
|
|
(2,396 |
) |
|
|
(2,301 |
) |
|
Interest
expense
|
|
|
(59 |
) |
|
|
(4 |
) |
|
Interest
income
|
|
|
— |
|
|
|
1 |
|
|
Change
in fair value of derivative liability
|
|
|
88 |
|
|
|
(1,208 |
) |
|
Other
income (expense), net
|
|
|
(8 |
) |
|
|
(29 |
) |
|
Net
loss
|
|
$ |
(2,375 |
) |
|
$ |
(3,541 |
) |
|
Net
loss per common share: basic and diluted
|
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
|
Weighted-average
number of shares used in per common share calculations:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
26,215 |
|
|
|
19,388 |
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,375 |
) |
|
$ |
(3,541 |
) |
|
Foreign
currency translation adjustments
|
|
|
(102 |
) |
|
|
71 |
|
|
Other
comprehensive loss
|
|
$ |
(2,477 |
) |
|
$ |
(3,470 |
) |
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
|
Three
Months Ended
June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
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Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,375 |
) |
|
$ |
(3,541 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
95 |
|
|
|
123 |
|
|
Stock-based
compensation
|
|
|
968 |
|
|
|
465 |
|
|
Change
in fair value of derivative liability
|
|
|
(88 |
) |
|
|
1,208 |
|
|
Non-cash
interest expense
|
|
|
24 |
|
|
|
— |
|
|
Foreign
currency transaction gains
|
|
|
(35 |
) |
|
|
(16 |
) |
|
Loss
on disposal of assets
|
|
|
4 |
|
|
|
— |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(96 |
) |
|
|
(306 |
) |
|
Inventories
|
|
|
12 |
|
|
|
2 |
|
|
Prepaid
expenses and other current assets
|
|
|
171 |
|
|
|
114 |
|
|
Accounts
payable
|
|
|
(146 |
) |
|
|
(273 |
) |
|
Accrued
expenses and other liabilities
|
|
|
(28 |
) |
|
|
530 |
|
|
Net
cash used in operating activities
|
|
|
(1,494 |
) |
|
|
(1,694 |
) |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Change
in long-term deposits
|
|
|
(10 |
) |
|
|
(26 |
) |
|
Purchases
of property and equipment
|
|
|
(18 |
) |
|
|
(15 |
) |
|
Net
cash used in investing activities
|
|
|
(28 |
) |
|
|
(41 |
) |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock, net of offering costs
|
|
|
— |
|
|
|
2,000 |
|
|
Proceeds
from the exercise of common stock options and warrants
|
|
|
9 |
|
|
|
— |
|
|
Deferred
offering costs
|
|
|
— |
|
|
|
(54 |
) |
|
Proceeds
from issued debt
|
|
|
2,000 |
|
|
|
— |
|
|
Principal
payments on debt
|
|
|
(71 |
) |
|
|
(89 |
) |
|
Payments
on capital lease obligations
|
|
|
— |
|
|
|
(2 |
) |
|
Net
cash provided by financing activities
|
|
|
1,938 |
|
|
|
1,855 |
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
(7 |
) |
|
|
12 |
|
|
Net
increase in cash and cash equivalents
|
|
|
409 |
|
|
|
132 |
|
|
Cash
and equivalents, beginning of period
|
|
|
6,258 |
|
|
|
1,921 |
|
|
Cash
and equivalents, end of period
|
|
$ |
6,667 |
|
|
$ |
2,053 |
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
35 |
|
|
$ |
4 |
|
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 tissue care products to treat infections and, through a separate
mechanism of action, enhance healing while reducing the need for
antibiotics. The Company’s platform technology, called Microcyn®, is a
proprietary solution of electrically charged oxychlorine small molecules
designed to treat a wide range of organisms that cause disease
(pathogens). 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 June
30, 2010 and for the three 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
June 30, 2010, condensed consolidated statements of operations for the three
months ended June 30, 2010 and 2009, and the condensed consolidated statements
of cash flows for the three months ended June 30, 2010 and 2009 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 months ended June 30, 2010 are not necessarily indicative
of results to be expected for the year ending March 31, 2011 or for any future
interim period. The condensed consolidated balance sheet at March 31, 2010 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, 2010, and notes thereto included in the
Company’s Form 10-K, which was filed with the SEC on June 8, 2010.
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 $71,000 and $96,000, which are included
in accounts receivable, net in the accompanying June 30, 2010 and March 31, 2010
condensed consolidated balance sheets, respectively.
Foreign
Currency Reporting
The
Company’s subsidiary in Mexico uses the local currency (Mexican Pesos) as its
functional currency and the Company’s subsidiary in 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 consolidated balance sheets at June 30,
2010 and March 31, 2010.
Foreign
currency transaction gains (losses) relate primarily to trade payables and
receivables between the Company’s subsidiaries in Mexico and Europe. These
transactions are expected to be settled in the foreseeable future. The Company
recorded foreign currency transaction gains of $35,000 and $16,000 for the three
months ended June 30, 2010 and 2009, respectively. The related gains were
recorded in other income and expense, net, in the accompanying condensed
consolidated statements of operations.
Net
Loss per Share
The
Company computes basic net loss per share 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
months ended June 30, 2010 and 2009 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):
|
|
|
June
30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Options
to purchase common stock
|
|
|
4,461 |
|
|
|
3,929 |
|
|
Restricted
stock units
|
|
|
— |
|
|
|
30 |
|
|
Warrants
to purchase common stock
|
|
|
9,297 |
|
|
|
9,407 |
|
|
|
|
|
13,758 |
|
|
|
13,366 |
|
Common
Stock Purchase Warrants and Other Derivative Financial Instruments
The
Company classifies common stock purchase warrants and other free standing
derivative financial instruments as equity if the contracts (i) require
physical settlement or net-share settlement or (ii) give 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), (ii) give the counterparty a choice
of net-cash settlement or settlement in shares (physical settlement or net-share
settlement), or (iii) contracts that contain reset provisions. 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 June 30, 2010, 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 their 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
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 Company maximizes the use of observable inputs and
minimizes the use of unobservable inputs when measuring fair value. The Company
uses 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 (in
thousands) at June 30, 2010 using
|
|
|
|
|
June 30,
2010
|
|
|
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)
|
|
$ |
384 |
|
|
|
— |
|
|
|
— |
|
|
$ |
384 |
|
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring through the date the
financial statements were issued.
Recent
Accounting Pronouncements
In March
2010, the FASB issued ASU No. 2010-17, “Revenue Recognition—Milestone Method
(Topic 605): Milestone Method of Revenue Recognition.” This
standard provides that the milestone method is a valid application of the
proportional performance model for revenue recognition if the milestones are
substantive and there is substantive uncertainty about whether the milestones
will be achieved. Determining whether a milestone is substantive requires
judgment that should be made at the inception of the arrangement. To meet the
definition of a substantive milestone, the consideration earned by achieving the
milestone (1) would have to be commensurate with either the level of effort
required to achieve the milestone or the enhancement in the value of the item
delivered, (2) would have to relate solely to past performance, and
(3) should be reasonable relative to all deliverables and payment terms in
the arrangement. No bifurcation of an individual milestone is allowed and there
can be more than one milestone in an arrangement. The new standard is effective
for interim and annual periods beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of this standard did not have any impact on
the Company’s consolidated financial position and results of
operations.
In May
2010, the FASB issued Accounting Standards Update No. 2010-19, “Foreign
Currency Issues: Multiple Foreign Currency Exchange Rates.” The guidance
provides clarification of accounting treatment when reported balances in an
entity’s financial statements differ from their underlying U.S. dollar
denominated values due to different rates being used for remeasurement and
translation. The guidance indicates that upon adopting highly inflationary
accounting for Venezuela, since the U.S. dollar is now the functional
currency of a Venezuelan subsidiary, there should no longer be any differences
between the amounts reported for financial reporting purposes and the amount of
any underlying U.S. dollar denominated value held by the subsidiary.
Therefore, any differences between these should either be recognized in the
income statement or as a cumulative translation adjustment, if the difference
was previously recognized as a cumulative translation adjustment. The adoption
of this standard is not expected to have any impact on the Company’s
consolidated financial position and results of operations.
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 $2,375,000 for the three months ended June 30,
2010. At June 30, 2010, the Company’s accumulated deficit amounted to
$119,412,000. During the three months ended June 30, 2010, net cash used in
operating activities amounted to $1,494,000. At June 30, 2010, the Company’s
working capital amounted to $6,701,000. The Company may raise
additional capital from external sources in order to continue the longer term
efforts contemplated under its business plan. The Company expects to continue
incurring losses for the foreseeable future and may raise additional capital to
pursue its product development initiatives, penetrate markets for the sale of
its products and continue as a going concern.
On May 1,
2010, the Company entered into a Loan and Security Agreement and a Supplement to
the Loan and Security Agreement with Venture Lending & Leasing, Inc. to
borrow up to an aggregate of up to $3,000,000 (collectively, the
“Agreements”). The Agreements provide for a first tranche of $2,000,000
and, upon meeting certain financial milestones, the Company may borrow a second
tranche of $1,000,000. The loan is secured by the all assets of the Company
excluding intellectual property under certain circumstances. On May 3, 2010, the
Company borrowed $2,000,000 on the first tranche. The effective interest rate on
the loan is 13.3%. For the first eight payments, the Company will make monthly
payments of interest only set at $16,660 through December 1, 2010. Thereafter,
the Company will make interest and principal payments of $75,000 per month
through June 1, 2013. Additionally, the Company will make a final balloon
payment of $132,340 on June 1, 2013 (Note 3).
For the
three months ended June 30, 2010, the Company received $9,000 in connection with
the exercise of 20,547 stock options.
The
Company currently anticipates that its cash and cash equivalents will be
sufficient to meet its working capital requirements to continue its sales and
marketing and research and development through at least July 1, 2011. However,
in order to execute the Company’s long-term 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 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.
Note
3. Condensed Consolidated Balance Sheets
Inventories
Inventories
consisted of the following (in thousands):
|
|
|
June
30,
2010
|
|
|
March
31,
2010
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Raw
materials
|
|
$ |
396 |
|
|
$ |
406 |
|
|
Finished
goods
|
|
|
252 |
|
|
|
302 |
|
|
|
|
|
648 |
|
|
|
708 |
|
|
Less:
inventory allowances
|
|
|
(119 |
) |
|
|
(143 |
) |
|
|
|
$ |
529 |
|
|
$ |
565 |
|
Notes
Payable
On
January, 28, 2006 and on March 14, 2006, the Company issued notes for aggregate
principal amounting to $47,000 with interest rates ranging from 4.9% to 14.4%
per annum. These notes were issued in connection with the purchase of two
automobiles. The Company made principal payments on these notes of $2,000 for
the three months ended June 30, 2010 and 2009. Aggregate interest expense under
these obligations amounted to $1,000 for the three months ended June 30, 2010
and 2009. These notes are payable in aggregate monthly installments of $3,000
including interest through March 14, 2011. The remaining balance of these
notes amounted to $7,000 at June 30, 2010, which 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 was issued in
connection with financing an automobile. During the three months ended June 30,
2010, the Company made principal and interest payments related to this note in
the amounts of $5,000 and $1,000, respectively. The remaining balance of this
note amounted to $84,000 at June 30, 2010 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 0.90% per annum. This instrument
was issued in connection with financing an automobile. During the three months
ended June 30, 2010 the Company made principal payments related to this note in
the amounts of $3,000 and negligible interest payments. The remaining balance of
this note amounted to $48,000 at June 30, 2010 of which $11,000 is included in
the current portion of long-term debt in the accompanying condensed consolidated
balance sheet.
On March
16, 2010, the Company entered into a note agreement for $184,000 with an
interest rate of 4.0% per annum. The note was used to finance insurance
premiums. The note is payable in monthly installments of $20,800 through
November 16, 2010. During the three months ended June 30, 2010, the Company made
principal and interest payments related to this note of $61,000 and $1,000,
respectively. The remaining balance of this note amounted to $103,000
at June 30, 2010 which is included in the current portion of long-term debt in
the accompanying condensed consolidated balance sheet.
On May 1,
2010, the Company entered into a Loan and Security Agreement and a Supplement to
the Loan and Security Agreement with Venture Lending & Leasing V, Inc. to
borrow up to an aggregate of $3,000,000 (collectively, the
“Agreements”). The Agreements provide for a first tranche of
$2,000,000 and, upon meeting certain financial milestones, the Company may
borrow a second tranche of $1,000,000. The loan is secured by the assets of
the Company excluding intellectual property under certain circumstances. On May
3, 2010, the Company borrowed $2,000,000 on the first tranche. For the first
eight payments, the Company will make monthly interest only payments set at
$16,660 through December 1, 2010. Thereafter, the Company will make interest and
principal payments of $75,000 per month through June 1, 2013. Additionally, the
Company will make a final balloon payment of $132,340 on June 1, 2013, resulting
in an effective interest rate of 13.3%. If the Company becomes
eligible to draw the second tranche, and borrows additional funds pursuant to
the second tranche, the Company will make interest-only payments for 6 months
following the commencement of the second tranche. Following the interest only
period, the second tranche will be amortized over 30 months, with a
final payment due equal to 6.617% of the original principal
balance. During the three months ended June 30, 2010, the Company
made interest payments of $32,000.
Additionally,
in connection with the Agreements, the Company issued a warrant to Venture
Lending & Leasing, Inc. for the purchase of 166,667 shares of the Company’s
common stock. If the Company becomes eligible to draw the
second tranche of the loan, and borrows additional funds pursuant to the second
tranche, the Company will be obligated to issue a second warrant for
the purchase of an additional 83,333 shares of its common stock (collectively,
the “Warrants”). The Warrants may be exercised for a cash payment of
$2.00 per share of common stock, subject to adjustment for stock splits,
dividends, a change in control or similar transactions. The Warrants
also have a cashless exercise feature. The Warrants expire on
November 30, 2017. The Warrants may be put back to the Company for
$500,000 cash, plus an additional $250,000 if the Company becomes eligible and
draws the second tranche of the loan. The put feature is available to
the holder for 60 days after the first of the following to occur: i) a change of
control of the Company, ii) the closing of at least $15,000,000 of additional
equity financing, or iii) March 31, 2014. The $500,000 cash value of
the warrant was recorded as a put warrant liability and a corresponding amount
of $500,000 was recorded as a discount on the note payable. The
discount will be accreted to non-cash interest expense over the term of the loan
using the effective interest method. During the three months ended
June 30, 2010, the Company recorded $24,000 of non-cash interest expense which
is included in the accompanying condensed consolidated statement of
operations. The remaining balance of this note amounted to
$2,000,000, and the carrying value, net of $476,000 discount, amounted to
$1,524,000, at June 30, 2010, of which $67,000, net of $148,000 discount, 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
June 30, 2010, the Company had employment agreements with five of its key
executives. The agreements provide, among other things, for the payment of six
to twenty-four months of severance compensation for terminations under certain
circumstances. With respect to these agreements, at June 30, 2010, potential
severance benefits amounted to $1,864,000 and aggregated annual salaries
amounted to $1,350,000.
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 were paid under
these agreements and were recorded as deferred revenue. On April 16, 2010 the
Company terminated the exclusive agreement with one of the
customers. Accordingly, the Company recorded the remaining balance of
the unamortized upfront fees as revenue which amounted to
$210,000. For the three months ended June 30, 2010 and 2009, the
Company recorded revenues of $217,000 and $24,000, respectively, related to the
upfront payments. These amounts were included in product revenue in
the accompanying condensed consolidated statements of operations. At
June 30, 2010, deferred revenue related to the remaining agreement amounted to
$181,000 of which $28,000 was short-term and is included in accrued expenses and
other current liabilities in the accompanying condensed consolidated balance
sheet. The remaining up-front fee will be amortized on a
straight-line basis over the term of the underlying agreement.
Agreements
with Related Party
On
January 26, 2009, the Company entered into a commercial agreement with VetCure,
Inc., a California corporation, to market and sell our Vetericyn products.
VetCure, Inc. later changed its name to Vetericyn, Inc. This agreement was
amended on February 24, 2009 and on July 24, 2009. At the time of each of these
transactions, Vetericyn was wholly-owned by Robert Burlingame, who was a
Director at the time of the transactions. Mr. Burlingame resigned
from the Board on February 10, 2010. Pursuant to the agreement, the
Company provides Vetericyn, Inc. with bulk product and Vetericyn, Inc. bottles,
packages, and sells Vetericyn Inc. products. The Company receives a fixed amount
for each bottle of Vetericyn sold by Vetericyn, Inc. In addition,
once certain financial milestones are met by Vetericyn, Inc., the Company shares
revenue generated by Vetericyn, Inc. related to Vetericyn sales.
On
February 24, 2009, the Company entered into a Purchase Agreement with
certain investors, including Robert Burlingame, who was a Director at the time
of the transaction. Mr. Burlingame resigned from the Board on
February 10, 2010. 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 of $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 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.
On
September 15, 2009, the Company entered a commercial agreement with V&M
Industries, Inc., a California corporation, to market and sell the Microcyn
over-the-counter liquid and gel products on a non-exclusive
basis. V&M Industries, Inc. was wholly-owned by Robert
Burlingame, who was a Director at the time of the
transaction. V&M Industries, Inc. subsequently changed its name
to Innovacyn, Inc. On June 1, 2010, Innovacyn and the Company amended
this agreement. Once certain milestones are met the Company will share
profits related to Vetericyn and Microcyn over-the-counter sales.
The Company currently manufactures all
Microcyn over-the-counter products and bears all inventory and collection risks
related to the over-the-counter sales and incurs costs associated with
Innovacyn’s sales and marketing efforts. Accordingly, the Company records
over-the-counter related revenue on the gross basis and records expenses related
to Innovacyn’s sales and marketing efforts in selling, general and
administrative expenses. During the three months ended June 30, 2010, the
Company recorded revenue related to these agreements in the amounts
of $361,000 and $24,000, 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 Mexican 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
The
Company deems financial instruments which do not have fixed settlement
provisions to be derivative instruments. The common stock purchase warrants
issued with the Company’s August 13, 2007 private placement, and the common
stock purchase 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. The Company was
required to include the reset provisions in order to protect the warrant holders
from the potential dilution associated with future financings. At issuance, the
warrants were recognized as derivative instruments and classified as equity and
have since been re-characterized as derivative liabilities. Accordingly, the
fair value of the derivative liabilities is re-measured at the end of every
reporting period with the change in value reported in the statement of
operations.
The
derivative liability was valued using the Black-Scholes option valuation model
and the following assumptions on the following dates:
|
|
|
June
30,
2010
|
|
|
March
31,
2010
|
|
|
Expected
life
|
|
2.12 years
|
|
|
2.37 years
|
|
|
Risk-free
interest rate
|
|
|
0.61 |
% |
|
|
1.02 |
% |
|
Dividend
yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
Volatility
|
|
|
84 |
% |
|
|
84 |
% |
|
Warrants
outstanding
|
|
|
724,188 |
|
|
|
724,188 |
|
|
Fair
value of warrants
|
|
$ |
384,000 |
|
|
$ |
472,000 |
|
The
Company recorded a gain of $88,000 and a loss of $1,208,000 due to a change in
the fair value of the Company’s derivative liability for the three months ended
June 30, 2010 and 2009, respectively. These amounts are included as a
change in the fair value of derivative instruments in the accompanying condensed
consolidated statements of operations.
Note
6. Stockholders’ Equity
Common
Stock Issued to Director
On April
1, 2009, the Company entered into a six month agreement with Mr. Bob Burlingame,
who was a Director at the time of the transaction. Pursuant to the agreement,
Mr. Burlingame provided the Company with sales and marketing expertise and
services as part of another revenue sharing agreement. In consideration of his
services, on June 12, 2009, the Company issued Mr. Burlingame 435,897
unregistered shares of its common stock. 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. The Company has amortized the fair value of the warrants
over the six month term of the consulting agreement which is consistent with its
treatment of similar cash transactions. Accordingly, the Company recorded
$476,000 of stock compensation expense related to this agreement which was
recognized on a straight-line basis over the six month term of the agreement
(April 1, 2009 to October 1, 2009). The Company recorded $238,000 of
compensation expense related to this agreement. The expense was recorded as
selling, general and administrative expense in the accompanying condensed
consolidated statement of operations for the three months ended June 30,
2009.
Common
Stock Issued to Service Providers
On April
24, 2009, the Company entered into an agreement with Advocos LLC, a contract
sales organization that serves as part of 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 contract sales organization a monthly fee and
potential bonuses that will be based on achievement of certain levels of sales.
The Company agreed to issue the contract sales organization shares of common
stock each month as compensation for its services. During the three months ended
June 30, 2010 and 2009, the Company issued 10,255 and 24,500 shares of common
stock, respectively, in connection with this agreement. The Company has
determined that 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 months ended June 30, 2010 and 2009, the
Company recorded $22,000 and $26,000 of compensation expense, respectively.
These expenses were recorded as selling, general and administrative expense in
the accompanying condensed consolidated statements of operations.
On
December 17, 2009, the Company entered into an agreement with Windsor
Corporation. Windsor Corporation provides financial advisory services
to the Company. Pursuant to the agreement, the Company agreed to pay Windsor
Corporation, on a quarterly basis, common stock valued at $30,000.
The Company 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 June 30, 2010, the Company issued 15,288 share of
common stock. The Company recorded $30,000 of expense related to this
agreement which was recorded as selling, general and administrative expense in
the accompanying condensed consolidated statement of operations.
On May
19, 2010, the Company issued common stock to Life Tech Capital, a Division of
Aurora Capital, LLC, for providing financial advisory services. The Company
agreed to pay Life Tech Capital, a Division of Aurora Capital, LLC, 20,000
shares of common stock for the services provided. The Company
determined the fair value of the common stock was more readily determinable than
the fair value of the services rendered. The aggregate fair value of
the common stock amounted to $44,000. Accordingly, during the three
months ended June 30, 2010, the Company recorded $44,000 of expense related to
this agreement which was recorded as selling, general and administrative expense
in the accompanying condensed consolidated statement of operations.
On May
19, 2010, the Company issued common stock to Acute Care Partners, Inc., for
providing recruiting and other management services. The Company agreed to pay
Acute Care Partners, Inc. 50,000 shares of common stock for the services
provided. The Company determined that the fair value of the common
stock was more readily determinable than the fair value of the services
rendered. The aggregate fair value of common stock amounted to
$111,000. Accordingly, during the three months ended June 30, 2010,
the Company recorded $111,000 of expense related to this agreement which was
recorded as selling, general and administrative expense in the accompanying
condensed consolidated statement of operations.
Note
7. Stock-Based Compensation
The
Company accounts for share-based awards exchanged for employee services at the
estimated grant date fair value of the award. The Company amortizes the fair
value of employee stock options on a straight-line basis over the requisite
service period of the awards. Compensation expense includes the
impact of an estimate for forfeitures for all stock options.
Employee
stock-based compensation expense is as follows (in thousands):
|
|
|
Three
Months
Ended
June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cost
of service revenue
|
|
$ |
15 |
|
|
$ |
4 |
|
|
Research
and development
|
|
|
51 |
|
|
|
29 |
|
|
Selling,
general and administrative
|
|
|
695 |
|
|
|
160 |
|
|
Total
stock-based compensation
|
|
$ |
761 |
|
|
$ |
193 |
|
No income
tax benefit has been recognized related to stock-based compensation expense and
no tax benefits have been realized from exercised stock options.
The
Company estimated the fair value of employee stock awards using the
Black-Scholes option pricing model. The fair value of employee stock options is
being amortized on a straight-line basis over the requisite service period of
the awards. The fair value of employee stock options granted during the three
months ended June 30, 2010 was estimated using the following
weighted-average assumptions: expected term of 5.6 years, risk-free
interest rate of 1.95%, and dividend yield of 0.00% and volatility of 84%. The
weighted-average fair value of options granted during the three months ended
June 30, 2010 was $1.36. The options were granted to the
Company’s executive officers. There were no options granted during
the three months ended June 30, 2009.
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 Staff Accounting Bulletin No. 107 for
“plain vanilla” options. 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 as well as the trading history for the Company’s common
stock. 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.
The
Company estimates forfeitures based on historical experience and reduces
compensation expense accordingly. The estimated forfeiture rates used
during the three months ended June 30, 2010 was 4.6%.
At June
30, 2010, there were unrecognized compensation costs of $2,211,000 related to
stock options which is expected to be recognized over a weighted-average
amortization period of 2.16 years.
The
Company did not capitalize any cost associated with stock-based
compensation.
The
Company issues new shares of common stock upon exercise of stock
options.
A summary
of all option activity as of June 30, 2010 and changes during the three months
then ended is presented below:
| |
|
Shares
(000)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at April 1, 2010
|
|
|
3,987 |
|
|
$ |
2.96 |
|
|
|
|
|
|
|
|
Granted
|
|
|
500 |
|
|
|
1.97 |
|
|
|
|
|
|
|
|
Exercised
|
|
|
(21 |
) |
|
|
0.42 |
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(5 |
) |
|
|
13.33 |
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2010
|
|
|
4,461 |
|
|
$ |
2.84 |
|
|
|
7.78 |
|
|
$ |
2,176 |
|
|
Exercisable
at June 30, 2010
|
|
|
2,204 |
|
|
$ |
3.95 |
|
|
|
6.50 |
|
|
$ |
834 |
|
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 ($2.04) for stock options that were in-the-money as of June 30,
2010.
As
provided under the Company’s 2006 Stock Incentive Plan (the “2006 Plan”), the
aggregate number of shares authorized for issuance as awards under the 2006 Plan
automatically increased on April 1, 2010 by 1,308,071 shares (which number
constitutes 5% of the outstanding shares on the last day of the year ended March
31, 2010).
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 Company determined, based on the results of the study, 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 the financial reporting and income tax purposes for the
quarter ended June 30, 2010. 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 standards, the valuation allowance will be reduced
accordingly.
The
Company only recognizes tax benefits from an uncertain tax position 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. To date, the Company has
not recognized such tax benefits in its financial statements.
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 uncertain tax matters was performed for tax years ended
through March 31, 2010. Generally, the Company is subject to audit for the
years ended March 31, 2009, 2008 and 2007 and may be subject to audit for
amounts relating to net operating loss carryforwards generated in periods prior
to March 31, 2007. The Company has elected to retain its existing
accounting policy with respect to the treatment of interest and penalties
attributable to income taxes, 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 generates revenues from wound care products which are sold into the
human and animal health care markets and the Company generates revenues from
laboratory testing services which are provided to medical device manufacturers.
The Company operates a single segment business which consists of three
geographical sales territories as follows (in thousands):
|
|
|
Three
Months
|
|
|
|
|
Ended
|
|
|
|
|
June 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
U.S.
|
|
$ |
522 |
|
|
$ |
131 |
|
|
Mexico
|
|
|
998 |
|
|
|
1,208 |
|
|
Europe
and other
|
|
|
525 |
|
|
|
228 |
|
|
|
|
$ |
2,045 |
|
|
$ |
1,567 |
|
The
Company’s service revenues amounted to $219,000 and $280,000 for the three
months ended June 30, 2010 and 2009.
Note
10. Subsequent Events
On August
5, 2010, the Company granted a one-time cash bonus of $83,000 to Hojabr Alimi,
the Company's Chairman of the Board of Directors and Chief Executive
Officer.
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
June 30, 2010 and our audited consolidated financial statements
for the year ended March 31, 2010 included in our report on Form 10-K, that was
filed with the Securities and Exchange Commission on June 8,
2010.
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 become profitable; the effect of the general decline in
the economy on our business; the progress and timing of our development programs
and regulatory approvals for our products; the benefits and effectiveness of our
products; the ability of our products to meet existing or future regulatory
standards; the progress and timing of clinical trials and physician studies; our
expectations related to the use of our cash reserves; our expectations and capabilities
relating to the sales and marketing of our current products and our product candidates;
our ability to gain sufficient reimbursement from third-party payors; our
ability to compete with other companies that are developing or selling products
that are competitive with our products; the establishment of strategic
partnerships for the development or sale of products; the risk our research and
development efforts do not lead to new products; the timing of commercializing our
products; our relationship with Quimica Pasteur; our ability to penetrate markets through
our sales force, distribution network, and strategic business partners to gain
a foothold in the market and generate attractive margins; the expansion of
our sales force and
distribution network; the ability to attain specified revenue goals within a specified time frame, if at
all, or to reduce costs; the outcome of discussions with the U.S. Food and
Drug Administration, or FDA, and other regulatory agencies; the
content and timing of submissions to, and decisions made
by, the FDA and other regulatory agencies, including demonstrating to the
satisfaction of the FDA the safety and efficacy of our products; our ability to manufacture
sufficient amounts of our product candidates for clinical trials and products for
commercialization activities; our ability to protect our intellectual property
and operate our business without infringing on the intellectual property of others; our
ability to continue to expand our intellectual property portfolio; our expectations
about the outcome of litigation and controversies with third parties;
the risk we may need to indemnify our distributors or other third parties; our
ability to attract and retain qualified directors, officers and employees;
our expectations relating to the concentration of our revenue from international
sales; our ability to expand to and commercialize products in markets outside the
wound care market; and the impact of the Sarbanes-Oxley Act of 2002 and any
future changes in accounting regulations or practices in general with respect to
public companies. 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
develop, manufacture and market a family of tissue care products that cure
infections and, through a separate mechanism of action, enhance healing while
reducing the need for antibiotics. Infection is a serious potential
complication in both chronic and acute wounds, and controlling infection is a
critical step in wound healing. Our platform technology, called Microcyn®, is a
proprietary solution of electrically charged oxychlorine small molecules
designed to treat a wide range of organisms that cause disease (pathogens).
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
wounds, as well as Clostridium
difficile (C. diff), a highly contagious bacteria spread by human
contact.
We do not
have the necessary regulatory approvals to market Microcyn in the United States
as a drug. In the United States our device product does, however, have six
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 as a preservative,
which can kill listed bacteria such as MRSA & VRE and required as
a prescription; and
|
|
|
6)
|
as a hydrogel, for management of
wounds including itch and pain relief associated with dermal irritation,
sores, injuries and ulcers of dermal tissue as a
prescription. As an over-the-counter product, the hydrogel is
intended to relieve itch and pain from minor skin irritations,
lacerations, abrasions and minor burns. It is also indicated for
management of irritation and pain from minor
sunburn.
|
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 hydrogel form and as conducive to wound healing via a 510(k)
medical device clearance.
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 are approved as a drug for antiseptic treatment of wounds and
infected areas. In India, our technology has a drug license for cleaning and
debriding in wound management while in China there is a medical device approval
by the State Food and Drug Administration 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 Technology 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 is 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) cleared products 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 and skin care, including
the respiratory, ophthalmology, dental, dermatology, animal healthcare and
industrial 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 the Microcyn Technology 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 as 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, non-toxic, require no special preparation and are
easy to use.
Our goal
is to become a worldwide leader as the standard of care in the treatment and
irrigation of open wounds and skin care. 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 Microcyn60™ in Mexico after
receiving approval from the Mexican Ministry of Health, for the use as an
antiseptic, disinfectant and sterilant. Since then, physicians in the United
States, Europe, India, Pakistan, China and Mexico have conducted more than 28
physician clinical studies assessing Microcyn Technology’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 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 six FDA 510(k) approvals for use as a medical device in wound cleaning,
or debridement, lubricating, moistening and dressing, including traumatic wounds
and acute and chronic dermal lesions. On May 27, 2009, we received a 510(k)
approval 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 Care with preservatives as both a
prescription and over-the-counter formulation. The new 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. Most
recently, on March 8, 2010, we received a 510(k) clearance from the FDA to
market our Microcyn Skin and Wound HydroGel for management of dermal irritation,
sores, injuries and ulcers of dermal tissue including itch and pain relief as a
prescription and as an over-the-counter product intended to relieve itch and
pain from minor skin irritations, lacerations, abrasions and minor
burns.
In the
fourth quarter of 2007, we completed a Phase II randomized clinical trial,
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 according to guidelines of Infectious Disease
Society of America. 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 of a new drug application to the FDA 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. FDA or
other governmental approvals will be required for any potential new products or
new indications.
Our
products are purchased by hospitals, physicians, nurses, and other healthcare
practitioners who are the primary caregivers to patients being treated for acute
or chronic wounds or undergoing surgical procedures. We currently
make Microcyn Technology available, both as prescription and over-the-counter
products, under our six 510(k) approvals in the United States, primarily through
a partnership with a combination of Advocos, a specialty U.S. contract
sales organization, and a commissioned sales force.
In the
quarter ending December 31, 2008, we initiated an aggressive
commercialization into the podiatry market in the United States. In the second
quarter of 2009, we expanded this sales effort to include wound care centers,
hospitals, nursing homes, urgent care clinics and home healthcare. Additionally,
we are in the process of introducing Microcyn-based consumer healthcare products
both in the United States and Mexico. Initially, these include animal and human
wound care.
On
January 26, 2009, we entered into a commercial agreement with VetCure, Inc., a
California corporation, to market and sell our Vetericyn products. VetCure, Inc.
later changed its name to Vetericyn, Inc. This agreement was amended on February
24, 2009 and on July 24, 2009. At the time of each of these transactions,
Vetericyn was wholly-owned by Robert Burlingame, who was a Director at the time
of the transactions. Mr. Burlingame resigned from our Board on
February 10, 2010. Pursuant to the agreement, we provide Vetericyn,
Inc. with bulk product and Vetericyn, Inc. bottles, packages, and sells
Vetericyn Inc. products. We receive a fixed amount for each bottle of Vetericyn
sold by Vertericyn, Inc. In addition, once certain milestones are met
by Vetericyn, Inc., we will share revenue generated by Vetericyn, Inc. related
to Vetericyn sales.
On
September 15, 2009, we entered a commercial agreement with V&M Industries,
Inc., a California corporation, to market and sell our Microcyn over-the-counter
liquid and gel products. V&M Industries, Inc. was wholly-owned by
Robert Burlingame, who was a Director at the time of the
transaction. V&M Industries, Inc. subsequently changed their name
to Innovacyn, Inc. On June 1, 2010 we entered into an amendment to
this agreement. Once certain milestones are met by Innovacyn, we will share
gross profits generated by Innovacyn. On May 13, 2010, Innovacyn received notice
from Health Canada they can market these products in the Canadian
market.
Our
partner, Union Springs Pharmaceuticals, a subsidiary of the Drug Enhancement
Company of America, has marketed MyClyns, an over-the-counter “first responder”
pen application, with Microcyn in the United States since January
2008.
Our
prescription dental partner, OroScience, Inc. has the exclusive right to sell
prescription dental products in the United States and Europe subject to certain
annual minimum payments and has filed for 510(k) approval to market our product
for use as an oral rinse in liquid form and for oral mucositis in a gel
form.
We have
announced the commercialization of a Microcyn hydrogel for both wound care and
dermatology which received six 510(k) approvals in the U.S. We intend to
pursue additional approvals in Europe, China, India and Mexico and plan to
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 in Italy, Netherlands, Germany,
Czech Republic, Sweden, Finland and Denmark.
In
Mexico, we market our products through our established distribution network and
direct sales organization. We have a dedicated contract sales force, including
salespeople, nurses and clinical support staff responsible for selling Microcyn
to private and public hospitals and to retail pharmacies.
In India,
we entered into an exclusive agreement with Alkem Laboratories, a large
pharmaceutical company in India, for the sale of Microcyn-based products in
India and Nepal.
In China,
we signed an exclusive distribution agreement with China Bao Tai, which in March
2008 secured marketing approval from the Chinese State Food and Drug
Administration. In April 2010, we terminated the distribution
agreement. We will continue to supply China Bao Tai with product on a
non-exclusive basis. We are currently in the process of setting up a
broader distribution network in China.
Throughout
the rest of the world, we intend to use strategic partners and distributors, who
have a significant sales, marketing and distribution presence in their
respective countries. We have established partners and distribution channels for
our wound care products in Bangladesh, Pakistan, Singapore, United Arab Emirates
and Saudi Arabia.
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 June 30, 2010 and 2009
Revenues
Total
revenues were $2,264,000 during the quarter ended June 30, 2010 compared to
$1,847,000 in the prior year period. Product revenues increased $478,000, or
31%, with the large increases in the U.S., Europe, India, the Middle East and
China, partially offset by a decline in Mexico.
Revenue
in Mexico decreased 17% from the prior year period with unusually high sales
last year, caused by the swine flu epidemic in Mexico. Unit sales of our
240-milliliter presentation, which is primarily sold to pharmacies in Mexico,
decreased 40% from the prior year to a monthly average of 34,195 units compared
to 56,692 in the same period last year. Sales to hospitals increased 8% with
price increases offsetting a decline in units sold. We believe that during the
quarter ended June 30, 2009, the swine flu epidemic in Mexico resulted in sales
of $300,000 to $350,000 higher than normal.
Europe
and Rest of World revenue increased $297,000, up 130% over the prior year
period, due to higher sales in Europe, India, the Middle East and China. Revenue
related to China, which amounted to $210,000, during the quarter resulted from
the conversion of the exclusive relationship with China Bao Tai to a
non-exclusive relationship and the recognition of deferred revenue related to an
upfront payment from China Bao Tai.
Product
revenue in the U.S. increased $391,000 with strong increases in animal and human
wound care, mostly related to television advertising and sales initiatives
sponsored by Innovacyn, Inc. and a royalty payment from Union Springs
Pharmaceuticals LLC, selling MyClyns, a germ protection spray to the
professional and consumer markets.
The
following table shows our product revenues by geographic region:
|
|
|
Three
Months
Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
Increase
|
|
|
U.S.
|
|
$ |
522,000 |
|
|
$ |
131,000 |
|
|
$ |
391,000 |
|
|
|
298 |
% |
|
Europe
and Rest of World
|
|
|
525,000 |
|
|
|
228,000 |
|
|
|
297,000 |
|
|
|
130 |
% |
|
Mexico
|
|
|
998,000 |
|
|
|
1,208,000 |
|
|
|
(210,000 |
) |
|
|
(17 |
)% |
|
Total
|
|
$ |
2,045,000 |
|
|
$ |
1,567,000 |
|
|
$ |
478,000 |
|
|
|
31 |
% |
Service
revenue decreased $61,000 when compared to the prior year period due to a
decrease in the number of tests provided by our services business.
Gross
Profit
We
reported gross profit from our Microcyn products business of $1,349,000, or 66%
of product revenues, during the three months ended June 30, 2010, compared to a
gross profit of $1,040,000, or 66%, in the prior year period. The flat gross
margins represent higher margins in U.S. and Europe and Rest of World, offset by
lower gross margins in Mexico. The higher margins in the U.S. are due to
improved product mix for certain U.S. sales. Mexico’s margins were 73% during
the quarter ended June 30, 2010, compared to 82% in the prior year period due to
the high volume last year caused by the swine flu epidemic.
We expect
our gross margins to improve in the U.S and Europe as our unit volume
increases.
Research
and Development Expense
Research
and development expense declined $325,000, or 45%, to $396,000 for the three
months ended June 30, 2010, compared to $721,000 in the prior year period. Most
of the decrease was attributable to the reduction in personnel and related
expenses, as we converted our research and development facility and the related
people to operational manufacturing, supporting the U.S. sales.
We expect
that our research and development expense will slightly increase over the next
few quarters as we spend more money on laboratory tests, clinical trials and the
development and approval of new products.
Selling,
General and Administrative Expense
Selling,
general and administrative expense increased $704,000, or 26%, to $3,389,000
during the three months ended June 30, 2010, from $2,685,000 during the three
months ended June 30, 2009. Primarily, this increase was due to a higher stock
compensation charge, up by $478,000 and higher compensation costs in the U.S.
Bonuses were recorded and paid during the quarter ending June 30, 2010,
consisting of stock options and cash. These increases were partially offset by
lower sales and marketing costs in Europe.
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., Europe and Rest of World,
and Mexico markets.
Interest
income and expense and other income and expense, net
Interest
expense increased $55,000 to $59,000 during the three months ended June 30, 2010
from $4,000 during the three months ended June 30, 2009. Primarily this increase
was due to $32,000 of cash interest incurred and $24,000 of non-cash interest
incurred during the three months ended June 30, 2010. This interest is related
to $2,000,000 borrowed on May 3, 2010. Interest income showed no material change
from the same period last year.
Other
income and expense, net decreased $21,000 to net other expense of $8,000 for the
three months ended June 30, 2010, from net other expense of $29,000 for the same
period last year. The change in other income and expense, net was primarily
related to the quarterly unrealized foreign exchange gains and losses on
intercompany transactions.
Derivative
liability
During
the three months ended June 30, 2010 we recorded a change in the fair value of
our derivative liability of $88,000 and as a result we recorded this amount as
income. For the three months ended June 30, 2009 we recorded a loss of
$1,208,000. The decrease in expense when comparing the three months ended June
30, 2010 to the three months ended June 30, 2009, was primarily the result of
the exercise of warrants.
Net
Loss
Net loss
for the three months ended June 30, 2010 was $2,375,000, down $1,166,000 from
$3,541,000 for the same period in the prior year. Our loss for the three months
ended June 30, 2010 decreased primarily due to the $1,208,000 loss we recorded
on our derivative instruments in the three months ended June 30,
2009.
Sources
of Liquidity
As of
June 30, 2010, we had cash and cash equivalents of $6,667,000. 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 $114,400,000 (net proceeds) of our common and convertible preferred
stock. This includes:
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|
·
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net proceeds of $21,936,000
raised in our initial public offering on January 30,
2007;
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·
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net proceeds of $9,124,000 raised
in a private placement of common shares on August 13,
2007;
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·
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net proceeds of $12,613,000
raised through a registered direct placement from March 31, 2008 to
April 1, 2008;
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·
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net proceeds of $1,514,000 raised
through a private placement on February 6,
2009;
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·
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net proceeds of $948,000 from a
private placement on February 24,
2009;
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·
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net proceeds of $2,000,000 from a
private placement on June 1,
2009;
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·
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net proceeds of $5,411,000 from a
registered direct offering on July 30, 2009;
and
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·
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proceeds
of $4,232,000 received from the exercise of common stock purchase warrants
and options.
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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. On May 1, 2010, we entered into a
loan and security agreement with a financial institution to borrow a maximum of
$3,000,000. Under this facility we borrowed $2,000,000. We may borrow an
additional $1,000,000 if we meet certain financial milestones.
Cash Flows
As of
June 30, 2010, we had cash and cash equivalents of $6,667,000, compared to
$6,258,000 at March 31, 2010.
Net cash
used in operating activities during the three months ended June 30, 2010 was
$1,494,000 primarily due to the $2,244,000 net loss for the period which
was offset in part by non-cash transactions during the three months ended June
30, 2010, including $968,000 of stock-based compensation, and an $88,000 gain on
the fair value adjustment of our derivative liability.
Net cash
used in operating activities during the three months ended June 30, 2009
was $1,694,000, primarily due to the $3,541,000 net loss for the period, a
$273,000 decrease in accounts payable, and a $306,000 increase in accounts
receivable. These uses of cash were offset in part by non-cash charges during
the year ended June 30, 2009, including $1,208,000 loss on the fair value
of warrants, $465,000 of stock-based compensation, $123,000 of depreciation and
amortization, and an increase in accrued and other liabilities of
$530,000.
Net cash
provided by financing activities was $1,938,000 the three months ended June 30,
2010, primarily due to the issuance of $2,000,000 of debt which was offset by
payments of $71,000 of outstanding debt during the period. We also received
$9,000 in connection with the exercise of stock options.
Net cash
provided by financing activities was $1,855,000 for the three months ended
June 30, 2009, primarily due to the issuance $2,000,000 of common stock
which was offset by payments of $89,000 of outstanding debt during the
period.
Operating
Capital and Capital Expenditure Requirements
We
incurred a net loss of $2,375,000 for the three months ended June 30, 2010.
At June 30, 2010 our accumulated deficit amounted to $119,412,000 and at March
31, 2010 our accumulated deficit amounted to $117,037,000. At June 30, 2010, our
working capital amounted to $6,701,000.
We may
raise additional capital from external sources in order to continue the longer
term efforts contemplated under our business plan. We expect to continue
incurring losses for the foreseeable future and may raise additional capital to
pursue our product development initiatives and to penetrate markets for the sale
of our products. We cannot provide any assurance that we will raise additional
capital. Our management believes 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.
We have
undertaken initiatives to reduce costs in an effort to conserve capital. Future
pivotal trials will require the selection of a partner and must also be
completed in order for us to commercialize Microcyn as a drug product in the
United States. Commencement of the pivotal clinical trials will be delayed until
we find a strategic partner to fund these trials. Without a strategic partner or
additional capital, our pivotal clinical trials will be delayed for a period of
time that is currently indeterminate.
Our
future funding requirements will depend on many factors, including:
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the scope, rate of progress and
cost of our clinical trials and other research and development
activities;
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•
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future clinical trial
results;
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•
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the terms and timing of any
collaborative, licensing and other arrangements that we may
establish;
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•
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the cost and timing of regulatory
approvals;
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•
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the cost and delays in product
development as a result of any changes in regulatory oversight applicable
to our products;
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•
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the cost and timing of
establishing sales, marketing and distribution
capabilities;
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•
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the effect of competing
technological and market
developments;
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•
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the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights; and
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•
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the extent to which we acquire or
invest in businesses, products and
technologies.
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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 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 were no changes in our internal control
over financial reporting that occurred during the fiscal quarter ended June 30,
2010 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
There
have been no material changes from risk factors previously disclosed in our
Annual Report on Form 10-K for the fiscal year ended March 31, 2010, as
filed with the SEC on June 8, 2010.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
On May
19, 2010, we issued 10,255 shares of common stock to Advocos, LLC, as
compensation for product sales services performed in connection with an
agreement between us and Advocos.
On May
19, 2010, we issued 20,000 shares of common stock to Life Tech Capital, a
Division of Aurora Capital LLC, as compensation for financial advisory services
in connection with an agreement between us and Life Tech Capital, a Division of
Aurora Capital, LLC.
On May
19, 2010, we issued 50,000 shares of common stock to Acute Care Partners, Inc.
as compensation for recruiting and other management services in connection with
an agreement between us and Acute Care Partners, Inc.
On June
30, 2010, we issued 15,288 shares of common stock to Windsor Corporation, as
compensation for financial advisory services in connection with an agreement
between us and Windsor Corporation, Inc.
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 June 30,
2010.
Item
4. Removed and Reserved
Item
5. Other Information
Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
On August
5, 2010, we granted a one-time cash bonus of $83,000 to Hojabr Alimi, our
Chairman of the Board of Directors and Chief Executive Officer. This bonus is
intended to partially compensate Mr. Alimi for the financial sacrifices and
personal debts Mr. Alimi acquired during the early years as he was building our
Company.
Item
6. Exhibits
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Exhibit
Number
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Description
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3.1
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Restated
Certificate of Incorporation of Registrant (included as Exhibit 3.1 of the
Company’s Annual Report on Form 10-K for the year ended
March 31, 2007, and incorporated herein by
reference).
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3.2
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Amended
and Restated Bylaws of Registrant, as amended effective on June 11,
2008 (included as Exhibit 3.2 to the Company’s Annual Report on
Form 10-K for the year ended March 31, 2008, and incorporated
herein by reference).
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4.1
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Specimen
Common Stock Certificate (included as Exhibit 4.1 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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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 (included as Exhibit 4.2 to the Company’s Registration
Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007, and incorporated herein by
reference).
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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 (included as Exhibit 4.3 to the Company’s Registration
Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007, and incorporated herein by
reference).
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4.4
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Form
of Warrant to Purchase Common Stock of Registrant (included as Exhibit 4.4
to the Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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4.5
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Form
of Warrant to Purchase Common Stock of Registrant (included as Exhibit 4.5
to the Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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4.6
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Form
of Warrant to Purchase Common Stock of Registrant (included as Exhibit
4.11 to the Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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4.7
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Form
of Warrant to Purchase Common Stock of Registrant (included as Exhibit
4.12 to the Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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4.8
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Form
of Warrant to Purchase Common Stock of Registrant (included as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
August 13, 2007, and incorporated herein by
reference).
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4.9
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Form
of Warrant to Purchase Common Stock of Registrant (included as
Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
March 28, 2008, and incorporated herein by
reference).
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4.10
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Form
of Common Stock Purchase Warrant for April 2009 offering (included as
Exhibit 4.15 to the Company’s Registration Statement on Form S-1
(File No. 333-158539) declared effective on July 24, 2009, and
incorporated herein by reference).
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4.11
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Warrant
issued to Dayl Crow, dated March 4, 2009 (included as Exhibit 4.16 to
the Company’s Annual Report on Form 10-K filed on June 11, 2009, and
incorporated herein by reference).
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4.12
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Form
of Common Stock Purchase Warrant for July 2009 offering, (included as
Exhibit 4.15 to the Company’s Registration Statement on Form S-1 (File No.
333-158539), as amended, declared effective on July 24, 2009, and
incorporated herein by reference)
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4.13
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Warrant
to Purchase Shares of Common Stock of Oculus Innovative Sciences, Inc.,
(Included as Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on May 6, 2010, and incorporated herein by
reference).
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10.1
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Form
of Indemnification Agreement between Registrant and its officers and
directors (included as Exhibit 10.1 to the Company’s Registration
Statement on Form S-1 (File No. 333-135584), as amended,
declared effective on January 24, 2007, and incorporated herein by
reference).
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10.2
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Form
of 2006 Stock Incentive Plan and related form stock option plan agreements
(included as Exhibit 10.6 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007, and incorporated herein by
reference).
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10.3
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Amended
and Restated Investors Rights Agreement, effective as of
September 14, 2006 (included as Exhibit 4.6 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.4
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Form
of Promissory Note issued to Venture Lending & Leasing III, Inc.
(included as Exhibit 4.7 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared effective
on January 24, 2007, and incorporated herein by
reference).
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10.5
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Form
of Promissory Note (Equipment and Soft Cost Loans) issued to Venture
Lending & Leasing IV, Inc. (included as Exhibit 4.8 to the
Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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10.6
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Form
of Promissory Note (Growth Capital Loans) issued to Venture
Lending & Leasing IV, Inc. (included as Exhibit 4.9 to the
Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by
reference).
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10.7
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Form
of Promissory Note (Working Capital Loans) issued to Venture
Lending & Leasing IV, Inc. (included as Exhibit 4.10 to the
Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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10.8
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Office
Lease Agreement, dated October 26, 1999, between Registrant and RNM
Lakeville, L.P. (included as Exhibit 10.7 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584),
as amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.9
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Amendment
to Office Lease No. 1, dated September 15, 2000, between
Registrant and RNM Lakeville L.P. (included as Exhibit 10.8 to the
Company’s Registration Statement on Form S-1
(File No. 333-135584), as amended, declared effective on
January 24, 2007, and incorporated herein by
reference).
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10.10
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Amendment
to Office Lease No. 2, dated July 29, 2005, between Registrant
and RNM Lakeville L.P. (included as Exhibit 10.9 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584),
as amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.11
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Amendment
No. 3 to Lease, dated August 23, 2006, between Registrant and
RNM Lakeville L.P. (included as Exhibit 10.23 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584),
as amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.12
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Amendment
No. 4 to Lease, dated September 13, 2007, by and between
Registrant and RNM Lakeville L.P. (included as Exhibit 10.43 to the
Company’s Annual Report on Form 10-K for the year ended
March 31, 2008, and incorporated herein by
reference).
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10.13
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Office
Lease Agreement, dated May 15, 2005, between Oculus Technologies of
Mexico, S.A. de C.V. and Antonio Sergio Arturo Fernandez Valenzuela
(translated from Spanish) (included as Exhibit 10.10 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.14
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Office
Lease Agreement, dated July 2003, between Oculus Innovative Sciences, B.V.
and Artikona Holding B.V. (translated from Dutch) (included as
Exhibit 10.11 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared effective
on January 24, 2007, and incorporated herein by
reference).
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10.15
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Amendment
to Office Lease Agreement, effective February 15, 2008, by and
between Oculus Innovative Sciences Netherlands B.V. and Artikona Holding
B.V. (translated from Dutch) (included as Exhibit 10.44 to the Company’s
Annual Report on Form 10-K for the year ended March 31, 2008,
and incorporated herein by reference).
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10.16
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Form
of Director Agreement (included as Exhibit 10.20 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.17
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Leasing
Agreement, dated May 5, 2006, by and between Mr. Jose Alfonzo I.
Orozco Perez and Oculus Technologies of Mexico, S.A. de C.V. (included as
Exhibit 10.22 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared effective
on January 24, 2007, and incorporated herein by
reference).
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10.18
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Stock
Purchase Agreement, dated June 16, 2005, by and between Registrant,
Quimica Pasteur, S de R.L., Francisco Javier Orozco Gutierrez and Jorge
Paulino Hermosillo Martin (included as Exhibit 10.24 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.19
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Framework
Agreement, dated June 16, 2005, by and among Javier Orozco Gutierrez,
Quimica Pasteur, S de R.L., Jorge Paulino Hermosillo Martin, Registrant
and Oculus Technologies de Mexico, S.A. de C.V. (included as
Exhibit 10.25 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared
effective on January 24, 2007, and incorporated herein by
reference).
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10.20
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Mercantile
Consignment Agreement, dated June 16, 2005, between Oculus
Technologies de Mexico, S.A. de C.V., Quimica Pasteur, S de R.L. and
Francisco Javier Orozco Gutierrez (included as Exhibit 10.26 to the
Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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10.21
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Partnership
Interest Purchase Option Agreement, dated June 16, 2005, by and
between Registrant and Javier Orozco Gutierrez (included as
Exhibit 10.27 to the Company’s Registration Statement on
Form S-1 (File No. 333-135584), as amended, declared effective
on January 24, 2007, and incorporated herein by
reference).
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10.22
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Termination
of Registrant and Oculus Technologies de Mexico, S.A. de C.V. Agreements
with Quimica Pasteur, S de R.L. by Jorge Paulino Hermosillo Martin
(translated from Spanish) (included as Exhibit 10.28 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.23
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Termination
of Registrant and Oculus Technologies de Mexico, S.A. de C.V. Agreements
with Quimica Pasteur, S de R.L. by Francisco Javier Orozco Gutierrez
(translated from Spanish) (included as Exhibit 10.29 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584), as
amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.24
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Director
Agreement, dated November 8, 2006, by and between Registrant and
Robert Burlingame (included as Exhibit 10.34 to the Company’s
Registration Statement on Form S-1 (File No. 333-135584),
as amended, declared effective on January 24, 2007, and incorporated
herein by reference).
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10.25†
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Exclusive
Marketing Agreement, dated December 5, 2005, by and between
Registrant and Alkem Laboratories Ltd (included as Exhibit 10.35 to
the Company’s Registration Statement on Form S-1 (File
No. 333-135584), as amended, declared effective on January 24,
2007, and incorporated herein by reference).
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10.26
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Securities
Purchase Agreement, dated August 7, 2007, by and between Registrant
and purchasers identified on the signatures pages thereto (included as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
August 13, 2007, and incorporated herein by
reference).
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10.27
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Registration
Rights Agreement, dated August 7, 2007, by and between Registrant and
purchasers identified on signatures pages thereto (included as
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
August 13, 2007, and incorporated herein by
reference).
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10.28
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Form
of Securities Purchase Agreement, dated March 27, 2008, by and
between Registrant and each investor signatory thereto (included as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
March 28, 2008, and incorporated herein by
reference).
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10.29
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Purchase
Agreement by and between Registrant and Robert Burlingame, dated
January 26, 2009 (included as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed January 29, 2009 and
incorporated herein by
reference).
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10.30
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Purchase
Agreement by and between Registrant and Non-Affiliated Investors, dated
January 26, 2009 (included as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed January 29, 2009 and
incorporated herein by reference).
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10.31
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Revenue
Sharing Distribution Agreement by and between Registrant and VetCure,
Inc., dated January 26, 2009 (included as Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed January 29, 2009 and
incorporated herein by reference).
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10.32
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Purchase
Agreement by and between Registrant and accredited investors, dated
February 6, 2009 (included as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed February 9, 2009 and
incorporated herein by reference).
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10.33
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Purchase
Agreement by and between Registrant, Robert Burlingame and Seamus
Burlingame, dated February 24, 2009 (included as Exhibit 10.4 to
the Company’s Current Report on Form 8-K filed February 27, 2009
and incorporated herein by reference).
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10.34
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Amendment
to Revenue Sharing Distribution Agreement by and between Registrant and
Vetericyn, Inc., dated February 24, 2009 (included as
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed
February 27, 2009 and incorporated herein by
reference).
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10.35
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Agreement
by and between Registrant and Robert C. Burlingame, dated April 1,
2009 (included as Exhibit 10.52 to the Company’s Annual Report on Form
10-K filed on June 11, 2009 and incorporated herein by
reference).
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10.36
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Microcyn
U.S. Commercial Launch Agreement, by and between Registrant and Advocos,
dated April 24, 2009 (included as Exhibit 10.53 to the Company’s
Current Report on Form 10-K filed on June 11, 2009 and incorporated herein
by reference).
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10.37
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Amendment
No. 5 to Lease by and between Registrant and RNM Lakeville, LLC,
dated May 18, 2009 (included as Exhibit 10.54 to the Company’s
Current Report on Form 10-K filed on June 11, 2009 and incorporated herein
by reference).
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10.38
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Engagement
Agreement by and between Registrant and Dawson James Securities, Inc.,
dated April 10, 2009, (included as Exhibit 10.55 to the Company’s
Registration Statement on Form S-1 (File No. 333-158539), as amended,
declared effective on July 24, 2009, and incorporated herein by
reference).
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10.39
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Letter
Agreement by and between Registrant and Dawson James Securities, Inc.,
dated July 2, 2009, (included as Exhibit 10.56 to the Company’s
Registration Statement on Form S-1 (File No. 333-158539), as amended,
declared effective on July 24, 2009, and incorporated herein by
reference).
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10.40
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Letter
Agreement by and between Registrant and Dawson James Securities, Inc.,
dated July 10, 2009, (included as Exhibit 10.57 to the Company’s
Registration Statement on Form S-1 (File No. 333-158539), as amended,
declared effective on July 24, 2009, and incorporated herein by
reference).
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10.41
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Warrant
Purchase Agreement by and between Registrant and Dawson James Securities,
Inc., dated July 13, 2009, (included as Exhibit 10.58 to the Company’s
Registration Statement on Form S-1 (File No. 333-158539), as amended,
declared effective on July 24, 2009, and incorporated herein by
reference).
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10.42
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Loan
and Security Agreement, dated May 1, 2010 between Oculus Innovative
Sciences, Inc. and Venture Lending & Leasing V., Inc., (Included as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6,
2010, and incorporated herein by reference).
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10.43
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Supplement
to the Loan and Security Agreement, dated as of May 1, 2010 between Oculus
Innovative Sciences, Inc., and Venture Lending & Leasing V, Inc.,
(included as Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on May 6, 2010, and incorporated herein by
reference).
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| |
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10.44*†
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Amendment
No. 3 to Revenue Sharing, Partnership and Distribution Agreement between
the Registrant and Vetericyn, Inc. |
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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*
|
|
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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†
|
Confidential treatment has been
granted with respect to certain portions of this
agreement.
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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: August
5, 2010
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By:
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/s/ Hojabr Alimi
|
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Hojabr
Alimi
|
|
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Its:
|
Chairman
of the Board of Directors and Chief
|
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
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Date: August
5, 2010
|
By:
|
/s/ Robert Miller
|
|
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Robert
Miller
|
|
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Its:
|
Chief
Financial Officer
|
|
|
|
(Principal
Financial Officer)
|