December
17, 2010
United
States Securities and Exchange Commission
Division
of Corporate Finance
100 F
Street, N.E.
Washington,
DC 20549
Attn: Aslynn
Hogue
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Re:
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Oculus
Innovative Sciences, Inc.
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Form 10-K for the fiscal year ended
March 31, 2010
Filed June 8, 2010
File No. 001-33216
Dear Ms.
Hogue:
I am
securities counsel for Oculus Innovative Sciences, Inc. (the
“Company”). Set forth below is the Company’s response to comments
received from the staff of the Securities and Exchange Commission (the “Staff”)
in their letter dated November 8, 2010. The numbering of the response
corresponds to the numbering of the comment in the letter from the
Staff.
Item 12. Security
Ownership of Certain Beneficial Owners….page 75
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Comment
1:
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We
note your response to prior comment 3 regarding the beneficial ownership
of Robert Burlingame. Please expand your analysis supporting
your determination that Robert Burlingame beneficially owned less than 5%
of your outstanding common stock to tell
us:
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the
steps that you took to confirm Robert Burlingame’s beneficial
ownership;
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how
you considered the Form 4s filed on June 3, 2009; June 19, 2009; and
January 7, 2010, including your analysis of the changes between the Form
4s;
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how
you considered the Schedule 13D filed on July 8, 2009 including the
reasons for the difference between the Schedule 13D and the disclosure of
beneficial ownership in your proxy statement filed on July 29, 2009;
and
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how
you determined that all of the 1,386,667 of derivative securities
disclosed in the Form 4 dated January 5, 2010 were subject to the 4.99%
restriction; for example, we note your disclosure on footnote 4 on pages
19-20 of your proxy statement that warrants for 388,889 shares were
subject to this restriction.
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Response
1:
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To
determine the beneficial ownership of Robert Burlingame for purposes of
completing the beneficial ownership table in the Company’s definitive
proxy filed on July 29, 2010, the Company examined Mr. Burlingame’s SEC
filings and its own SEC filings. The Company also reviewed its
own internal records and corresponded with Robert Burlingame to confirm
his beneficial ownership of Company securities. The Company
considered historical SEC filings as part of determining the entire
picture of Mr. Burlingame’s ownership of the Company’s
stock. Additionally, the Company provided such historical
information to the Staff in its response letter dated October 29, 2010
because the Staff had issued two comments regarding the ownership of
Robert and Seamus Burlingame and we believed such historical information
would provide the Staff with context for Robert Burlingame and Seamus
Burlingame’s ownership on July 15, 2010 as reported in the Company’s
definitive proxy filed on July 29, 2010. During the year
between the Company’s definitive proxy filed on July 29, 2009 and the
Company’s definitive proxy filed on July 29, 2010, Mr. Burlingame disposed
of certain of his securities, Mr. Burlingame’s options expired pursuant to
their terms due to his resignation as a Director of the Company and the
Company issued additional shares of common stock diluting Mr. Burlingame’s
position.
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Subsequent
to the Company’s last letter, the Company reconfirmed Robert Burlingame’s
ownership. Mr. Burlingame holds shares of the Company’s common stock
both in his own name and through entities of which he has partial
control. In reconfirming Mr. Burlingame’s ownership, the Company
learned a small portion of Mr. Burlingame’s shares are owned through an entity
that he partially controls and such shares should be attributed to Mr.
Burlingame’s beneficial ownership although they were not included at the time
the Company calculated Mr. Burlingame’s ownership for the Definitive Proxy filed
on July 29, 2010. The addition of those shares brings Mr.
Burlingame’s ownership to approximately 5.4% of the Company’s common stock as of
July 15, 2010, the date of the beneficial ownership table as filed in the
Company’s Definitive Proxy on July 29, 2010. Thus, the Company should
have included Robert Burlingame as an owner of more than 5% of the Company’s
common stock in that Definitive Proxy.
The
Company considered the following Form 4s filed by Robert Burlingame in the
following manner (in addition to the Form 4s requested by the Staff, we have
also included a Form 4 filed on March 6, 2009 to be inclusive of the entire
February 27, 2009 private placement):
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The
Form 4 filed by Robert Burlingame on March 6, 2009 reflects the first
tranche of the Purchase Agreement, as described in the Company’s Current
Report on Form 8-K, filed on February 27,
2009.
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The
Form 4 filed by Robert Burlingame on June 3, 2009 reflects the second
tranche of the Purchase Agreement, as described in the Company’s Current
Report on Form 8-K, filed on February 27,
2009.
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The
Form 4 filed by Robert Burlingame on June 19, 2009 reflects the issuance
of the Company’s common stock to Mr. Burlingame as compensation for his
consulting services, as disclosed in Exhibit 10.52 of the Company’s Annual
Report on Form 10-K, filed on June 11,
2009.
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The
Form 4 filed by Robert Burlingame on January 7, 2010 reflects the issuance
of common stock options as compensation for serving on the Company’s Board
of Directors. As discussed further below, all common stock
options expired following Mr. Burlingame’s resignation as a
director.
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The
Company respectfully notes that there are not discrepancies in Robert
Burlingame’s Schedule 13D and the disclosure in the Company’s beneficial
ownership table in its proxy statement filed on July 29, 2009. In
instances, noted below, Mr. Burlingame, in the interest of transparency,
disclosed certain securities that he was not required to disclose pursuant to
the rules and regulations of the SEC however he clearly noted the instances
where that occurred. The Company respectfully believes such
over-disclosure, particularly where it is clearly stated to be such, should not
be considered a discrepancy.
Per the
Schedule 13D filed by Robert Burlingame on July 8, 2009, he reported beneficial
ownership of 1,550,486 shares of common stock. In its beneficial
ownership table in its proxy statement filed on July 29, 2009, the Company also
reported his ownership of 1,550,486 shares, consisting of direct ownership of
1,294,931 shares of common stock, and deemed ownership of 255,555 shares of
common stock. We respectfully note that these items are the same so
there is no difference to account for.
Per the
Schedule 13D filed by Robert Burlingame on July 8, 2009, he reported derivative
ownership of 1,371,667 shares of common stock consisting of:
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130,000
common stock options;
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166,667
Series A warrants, exercisable September 4,
2009;
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222,222
Series B warrants, exercisable September 4,
2009;
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333,333
Series A warrants, exercisable December 1, 2009;
and
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444,445
Series B warrants, exercisable December 1,
2009.
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In its
beneficial ownership table in its proxy statement filed on July 29, 2009, the
Company reported derivative ownership of 205,000 shares of common stock
consisting of
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75,000
warrant shares; and
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130,000
common stock options currently
exercisable.
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The
difference of 1,166,667 derivative shares consist entirely of Series A and
Series B warrants (disclosed in the Company’s Current Report on Form 8-K, filed
on February 27, 2009) that were not exercisable until six months after the date
of the issuance of the warrants and were furthermore not exercisable due to the
4.99% limitation. As stated above, the Company does not believe this
is an inconsistency but rather over disclosure in the Schedule
13D. The 13D filed by Robert Burlingame included certain warrants as
part of his beneficial ownership that he did not need to include under the
rules, which Mr. Burlingame went so far as to note in the last sentence of Item
11 of his Schedule 13D.
Mr.
Burlingame’s Schedule 13D filed on July 8, 2009 in Item 11 states:
“On
September 4, 2009, 166,667 and 222,222 shares of common stock underlying
Series A and Series B Warrants issued March 4, 2009,
respectively, will become exercisable pursuant to the terms of those warrants.
On December 1, 2009, 333,333 and 444,445 shares of common stock underlying
Series A and Series B Warrants issued June 1, 2009, respectively,
will become exercisable pursuant to the terms of those warrants. The common
stock underlying the warrants issued on June 1, 2009 may not be acquired
within 60 days until October 2, 2009. Notwithstanding the foregoing, the
reporting person is electing to include these shares in the calculation of
beneficial ownership as of the date of this filing. (emphasis
added)”
The
Company’s disclosure in the beneficial ownership table filed in its Definitive
Proxy on July 29, 2009 complies with Regulation S-K, Item 403 and Rule
13d-3 of the Exchange Act and correctly omits such warrants as part
of Mr. Burlingame’s beneficial ownership.
In
reporting the derivative securities owned by Robert Burlingame as of January 7,
2010, the Company respectfully notes that in its letter to the Staff dated
October 29, 2010, it stated the 1,386,667 of derivative securities reported by
Mr. Burlingame consisted of both warrants and options. The Company
further stated only the warrants were subject to the 4.99%
restriction. The options, which had no corresponding restriction, had
expired pursuant to their terms at the time the Company filed its 2010 proxy due
to Mr. Burlingame’s resignation as a director.
The
Company determined that the 1,386,667 of derivative securities owned by Robert
Burlingame as stated in his January 7, 2010 Form 4 were comprised of the
following blocks:
Stock
options: 130,000 common stock options that that were reported
by Mr. Burlingame on his Schedule 13D filed July 8, 2009, consisting of 75,000
options first reported on a Form 3 filed by Mr. Burlingame on January 24, 2007;
15,000 options first reported on a Form 4 filed by Mr. Burlingame on November
16, 2007; 15,000 options first reported on a Form 4 filed by Mr. Burlingame on
September 4, 2008; and 25,000 options first reported on a Form 4 filed by Mr.
Burlingame on December 11, 2008. Mr. Burlingame also reported
receiving 15,000 common stock options on a Form 4 filed on January 7,
2010.
Warrants: 1,166,667
common stock purchase warrants issued to Mr. Burlingame per the February 24,
2009 purchase agreement disclosed on the Company’s Current Report on Form 8-K
filed February 27, 2009. The warrants were issued in a first tranche
of 388,889 warrants, consisting of 166,667 Series A and 222,222 Series B common
stock purchase warrants and a second tranche of 777,778 warrants, consisting of
333,333 Series A and 444,445 Series B common stock purchase
warrants. Both tranches were reported by Mr. Burlingame on his
Schedule 13D filed July 8, 2009 and reported on Form 4s as discussed
above.
Additionally,
Mr. Burlingame holds 75,000 common stock purchase warrants that were reported by
Mr. Burlingame on his Schedule 13D filed July 8, 2009 and first reported on a
Form 3 filed by Mr. Burlingame on January 24, 2007.
Each of
the warrants states that the Beneficial Ownership Limitation is initially set at
4.99%, but may be waived by the Holder of the warrant with 61 days notice,
whereby the Beneficial Ownership Limitation will be increased to
9.99%. As of the date of this letter, Mr. Burlingame has not notified
the Company of his intention to waive the Beneficial Ownership
Limitation. Because the Beneficial Ownership table included in the
Company’s Schedule 14A filed on July 29, 2010 only includes warrants that may be
exercised within 60 days, and because Mr. Burlingame has not waived the 4.99%
limitation, the Company concluded such warrants should be excluded from Mr.
Burlingame’s Beneficial Ownership.
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Comment
2:
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We
note your response to prior comment 3 Seamus Burlingame beneficially owned
approximately 6.0% of your common stock as of July 15, 2010 and that you
will “undertake to consider the shares of stock held by Seamus Burlingame
in determining disclosures in future filings.” Please provide
us with the analysis supporting your determination that consideration of
the shares of stock held by Seamus Burlingame was not necessary or that
disclosure of his beneficial ownership was not required in your proxy
statement filed on July 29, 2010.
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Response
2:
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As
stated in its prior response to the Staff’s Comment 3 in its letter dated
October 29, 2010, the Company acknowledges that it excluded Seamus
Burlingame from the beneficial ownership table in error. The
Company attributes this error to a number of factors. Seamus Burlingame is
not and has never been an officer, director or employee of the Company and
he beneficially owns less than 10% of the Company’s
securities. Accordingly, he has not filed a Form 3 or Form 4
with the Securities and Exchange Commission. Seamus Burlingame’s sole
ownership report was a Schedule 13D filed on July 8,
2009. Additionally, the Company had not issued any securities
to Seamus Burlingame since June 1, 2009, as last disclosed on June 4, 2009
in the Company’s Current Report on Form 8-K. Finally, the
Company had 20,582,342 shares of common stock outstanding as of July 29,
2009, the date of its 2009 Definitive Proxy and 26,277,458 shares of
common stock outstanding as of July 15, 2010, the date of the beneficial
ownership table in the Company’s 2010 Definitive Proxy and the Company
believed, in error, Seamus Burlingame’s position on July 15, 2010 had been
diluted below the 5% threshold necessary to report his
holdings.
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The
Company respectfully disagrees with the Staff’s assertion that the Company
believes disclosure of shares of stock held by Seamus Burlingame was not
necessary. To the contrary, the Company has repeatedly disclosed the
transaction in which Seamus Burlingame acquired his shares. The
Company initially disclosed this transaction in its Form 8-K filed on February
27, 2009 and Seamus Burlingame disclosed it in a Schedule 13D dated July 8,
2009. The Company has also repeatedly described the transaction in
every periodic report it has filed since the original placement of the stock in
February 2009. Most recently, the transaction was included under the
heading “Common Stock Issued in a Private Placement to a Related Party” on page
65 of the Company’s Annual Report on Form 10-K for the year ended March 31,
2010. Accordingly, the Company believes there is substantial
disclosure available to its shareholders about the transaction in which Seamus
Burlingame acquired his equity interest in the Company.
Additionally,
the Seamus Burlingame has been mentioned by name in several of the Company’s SEC
filings including the following:
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Seamus
Burlingame was referred to by name in the title of Exhibit 10.4, listed on
the face of the Current Report on Form 8-K filed by the Company on
February 27, 2009, as well as in subsequent references to that
Exhibit. Additionally, Seamus Burlingame was referred to by
name within Exhibit 10.4 itself.
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Seamus
Burlingame filed a Form 13D disclosing his beneficial ownership in the
Company on July 8, 2009.
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The
Company also included Seamus Burlingame’s holdings in the beneficial
ownership table in its Definitive Proxy filed on July 29,
2009. In the footnote to that table, the Company also described
the transaction and how Seamus Burlingame acquired his equity
interest.
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The
Company respectfully believes that there is substantial public disclosure across
over fifteen SEC filings including 10-Qs, a 10-K, S-1s, a Definitive Proxy, an
8-K and a Schedule 13D explaining how Seamus Burlingame made a one-time
investment in the Company close to two years ago. While the Company
acknowledges that it omitted disclosure of Seamus Burlingame’s equity interest
in error in one filing, it respectfully notes that the information regarding
that transaction is widely available and referred to several times in the
Company’s Annual Report on Form 10-K for the year ended March 31, 2009 and that
the exhibit list in that report also includes a reference to the documentation
for the transaction such that any investor could easily find it.
Additionally,
the Company believes omitting Seamus Burlingame from the beneficial ownership
table in its definitive proxy filed on July 29, 2010 does not represent a
material omission in that definitive proxy or the Annual Report on Form
10-K. Mr. Burlingame’s holdings are a small percentage, only 1%, over
the requirement to report at 5%. Seamus Burlingame has not agreed to
purchase additional shares of stock from the Company since he entered into a
purchase agreement on February 24, 2009 and that, to date, Seamus Burlingame has
been a one-time passive investor. Additionally, at the time the
Company filed its definitive proxy on July 29, 2010, Robert Burlingame was no
longer a Director of the Company and Seamus had no family relationships to any
of the Company’s officers or directors.
Furthermore,
the Company does not believe that the exclusion of Seamus Burlingame from the
Beneficial Ownership Table included in the Company’s proxy statement filed on
July 29, 2010 would have affected the shareholder vote on matters presented to
shareholders at the Annual Meeting. The Directors nominated and
subsequently elected, Gregg Alton and Jay Birnbaum, are in no way related to
Seamus Burlingame. The Company believes the ratification of Marcum
LLP as the Company’s independent public accountant would not be affected either
particularly because it passed by a wide margin.
The
Company also believes that the outcome of the investor vote regarding the
approval of its 2010 Stock Incentive Plan would not have changed based on
disclosure of the holdings of Seamus Burlingame in the Company’s Definitive
Proxy. However, even if the holdings of Mr. Burlingame were
sufficiently material to affect the vote of an investor, the approval of the
2010 Stock Incentive Plan did not receive sufficient votes, and the Plan was not
approved by shareholders. Consequently, while the Company
acknowledges it should have included Seamus Burlingame in the beneficial
ownership table of its definitive proxy filed on July 29, 2010, it believes, for
the reasons stated above, it should not amend its Definitive Proxy to include
such information. As stated in the letter to the Staff dated October
29, 2010, the Company undertakes to carefully assess the Seamus Burlingame’s
equity ownership in the Company when drafting disclosure in future
filings.
Comments 3 and
5: We have respectfully grouped Staff comments 3 and 5
together as they relate to the same subject matter.
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Comment
3:
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We
note the final paragraph of your response to prior comment
3. Please tell us what transactions you entered into with
Robert or Seamus Burlingame that you did not believe were material as of
July 29, 2010, but have increased in importance subsequent to that
date. Please tell us how you made the determination not to
disclose or file as exhibits these
agreements.
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Comment
5:
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It
remains unclear from your response to prior comment 6 why you did not file
your July 24, 2009 amendment to your commercial agreement to sell
Vetericyn products on your September 15, 2009 commercial agreement to sell
your Microcyn over-the-counter liquid and gel products. For
example, please tell us the basis for your determination that neither
contract was material under Rule 404 of Regulation S-K. Please
also tell us why you did not file your June 1, 2010 and September 1, 2010
amendments to your commercial agreement to sell your Microcyn
over-the-counter liquid and gel products, which you mention on page 10 of
your Form 10-Q filed on November 4,
2010.
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Response to Comments 3 and
5:
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For
clarity, the Company respectfully notes that it has fully disclosed in its
SEC filings all agreements and transactions entered into directly with
Robert or Seamus Burlingame, including the following transactions entered
into since January 1, 2009:
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A
purchase agreement between the Company and Robert and Seamus Burlingame
dated January 26, 2009, disclosed on the Company’s Current Report on Form
8-K dated January 29, 2009 (that was subsequently
rescinded).
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A
purchase agreement between the Company and Robert and Seamus Burlingame
dated February 24, 2009, rescinding and replacing the January 26, 2009
purchase agreement, disclosed on the Company’s Current Report on Form 8-K
dated February 27, 2009.
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A
Consulting Agreement between the Company and Robert Burlingame, dated
April 1, 2009, included as Exhibit 10.52 to the Annual Report on Form 10-K
filed on June 11, 2009.
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Additionally,
the Company has entered into transactions with entities wholly or partially
controlled by Robert Burlingame as further described below. In
determining whether to file such contracts or amendment to such contracts, the
Company relied upon Item 601(b)(10)(ii) of Regulation S-K which requires the
disclosure of contracts made in the ordinary course of business, “except where
immaterial in amount or significance.” Additionally, the Company
considered its disclosure obligations under Item 404 of Regulation S-K when
entering into a transaction with a related party or an entity controlled by a
related party as further discussed below.
Vetericyn
Contracts
On
January 26, 2009, the Company entered into the Revenue Sharing and Distribution
Agreement with VetCure, Inc. The VetCure agreement provides that the
Company would provide the Vetericyn product to VetCure, and VetCure would
distribute, market and sell the product. The Company would only earn
revenue upon sales by VetCure, however no revenue, royalty or commission was
guaranteed to the Company. VetCure, Inc. subsequently changed its
name to Vetericyn, Inc. The VetCure Agreement was initially disclosed
in Exhibit 10.3 in the Company’s Current Report on Form 8-K dated January 29,
2009. The Company did not believe the VetCure agreement was material
at the time it was entered into because the Company, at that time, did not
anticipate that the VetCure agreement would generate significant
revenues. Additionally, the VetCure Agreement did not meet the
$120,000 requirement to be disclosed pursuant to Item 404 of Regulation
S-K. Consequently, the Company was not required to disclose the
transaction. However, the Company determined to voluntarily disclose
the VetCure agreement in a Form 8-K filed January 29, 2009 in the interest of
transparency and to provide information to its shareholders. The
Company continued to discuss and disclose this transaction in each of its
subsequent periodic reports.
On
February 24, 2009, the Revenue Sharing and Distribution Agreement between the
Company and Vetericyn, Inc. (formerly VetCure, Inc.) was amended and renamed the
Revenue Sharing, Partnership and Distribution Agreement (hereafter, the
“RSPDA”). Amendment 1 to the RSPDA expanded Vetericyn, Inc.’s sales
territory, and deleted the equity compensation clause. At the time
Amendment 1 was entered into, the Company had earned nominal revenue from the
RSPDA of approximately $5,000 and the Company did not believe the RSPDA contract
was material. Additionally, the RSPDA did not meet the $120,000 requirement to
be disclosed pursuant to Item 404 of Regulation S-K. However, for the
reasons discussed directly above, the Company filed the RSPDA on a Form 8-K on
February 27, 2009.
On July
24, 2009, the Company and Vetericyn, Inc. entered into Amendment 2 to the
RSPDA. Amendment 2 to the RSPDA changed revenue sharing terms,
however, at this time, the Company was still earning only nominal revenue from
the RSPDA and the Company did not believe the RSPDA contract was
material. Furthermore, Amendment 2 to the RSPDA, as well as the RSPDA
as a whole, did not meet the $120,000 requirement to be disclosed pursuant to
Item 404 of Regulation S-K. Accordingly, the Company did not file
Amendment 2 to the RSPDA at the time it was entered into because it did not
believe the RSPDA as a whole was material and that Amendment 2 to the RSPDA did
not contain material revisions to the terms of the original
agreement. The Company subsequently filed Amendment 2 to the RSPDA as
Exhibit 10.44 to its Form 10-Q filed on November 4, 2010 because, almost a year
after Amendment 2 was entered into, the RSPDA began producing material
revenue. At that point, the Company determined to file Amendment 2 to
the RSPDA.
On June
1, 2010, the Company and Vetericyn, Inc. entered into Amendment 3 to the
RSPDA. Amendment 3 changed revenue sharing terms and expanded
Vetericyn Inc.’s sales territory. It was at the time Amendment 3 was
entered into, in the Company’s first fiscal quarter of 2010, that the Company
first began earning significant revenue from the RSPDA. Once the
RSPDA began producing significant revenue, the Company reassessed the
materiality of the RSPDA and determined to disclose the Amendments to the RSPDA
that had not yet been disclosed. Amendment 3 to the RSPDA was
included as Exhibit 10.34 to the Company’s Quarterly Report on Form 10-Q filed
on August 5, 2010.
The
Company has repeatedly and consistently disclosed and discussed the original
VetCure Agreement and the subsequent RSPDA including in the following
filings:
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All
of the Company’s Quarterly Reports on Form 10-Q from the quarter ending
September 30, 2009 until the most recent 10-Q for the quarter ended
September 30, 2010;
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the
Company’s Registration Statement on Form S-1, declared effective on March
26, 2009;
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the
Company’s Registration Statement on Form S-1, declared effective on July
24, 2009;
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the
Company’s Annual Report on Form 10-K, for the year ended March 31, 2010;
and
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the
Company’s Definitive Proxy, filed on July 29,
2010.
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The
Company believes it has provided consistent and continuous disclosure regarding
the VetCure and subsequent RSPDA contracts including disclosure that such
contracts were entered into with a Director, or former Director and significant
shareholder, as the facts dictated. Additionally, such disclosures
were consistently identified as Related Party transactions. The
Company believes such disclosures meet and exceed its obligations under Item 404
of Regulation S-K.
Microcyn
Contracts
On
September 25, 2009, the Company entered into the Revenue Sharing Distribution
Agreement with V&M Industries, Inc. At the time of the initial
transaction, V&M Industries was wholly owned by Robert
Burlingame. This V&M Agreement was not filed as an exhibit
because it was not considered material at that time. Similar to the
Vetericyn contract, the V&M Agreement provided that the Company would
provide the Microcyn product to V&M Industries and V&M Industries would
distribute, market and sell the product. The Company would only earn
revenue upon sales by V&M Industries, and no revenue, royalty or commission
was guaranteed to the Company. V&M Industries, Inc. subsequently
changed its name to Innovacyn, Inc.
On June
1, 2010, the Company entered into Amendment No. 1 to Exhibit A to Revenue
Sharing and Distribution Agreement and to Revenue Sharing Partnership and
Distribution Agreement as Revised and Amended, which amended both the Vetericyn
agreement and the Innovacyn agreement. The Company respectfully notes
the Staff comment number 5 is incorrect in stating that the Company did not file
this document. Amendment No. 1 to Exhibit A was filed as Exhibit
10.46 to the Company’s Quarterly Report on Form 10-Q on November 4,
2010.
At the
time the Company entered into the original Agreements with Vetericyn, Inc.
(formerly VetCure, Inc.) to sell Vetericyn products and Innovacyn, Inc.
(formerly V&M Industries, Inc.) to sell Microcyn products, (the
“Agreements”) neither Agreement met the standard of
materiality. Neither Agreement guaranteed the Company revenue and, in
fact, for almost a year, neither Agreement provided anything other than nominal
revenues. As such, the Agreements taken individually or as a whole
did not meet the $120,000 requirement to be disclosed pursuant to Item 404 of
Regulation S-K. Furthermore, each Agreement is for distribution of
the Company’s products. The Company does not have significant
distribution capability of its own, and relies extensively on third party
distributors to distribute its products. The Company has entered into
a number of distribution agreements and considers them a routine part of its
business. Thus, the Agreements do not represent a new or different
strategic direction for the Company. As such, the Company considered
both Agreements to be immaterial however determined to disclose the Vetericyn
Agreement because it was with a related party. The Company did not
disclose the Microcyn contract because the Company considered, at the time it
entered into the Microcyn contract and currently that the Microcyn contract is
and continues to be immaterial. Unlike the Vetericyn Agreements,
which currently generate a significant portion of the Company’s revenues, the
Microcyn Agreements still produce nominal revenues. The Company
provides disclosure in its periodic reports identifying and describing the
Microcyn contracts and further identifies them as related party
transactions. However, the Company continues to believe at this time
the Microcyn Agreements are immaterial. However, if, in the future,
the Microcyn Agreements generate more revenue or become strategically important,
the Company undertakes to disclose them at that time. Additionally,
if Robert Burlingame continues to be a related party as defined by Item 404 of
Regulation S-K and he continues to have a controlling interest in Innovacyn, the
Company will consider whether disclosure pursuant to Item 404 of Regulation S-K
is appropriate.
The
Company most recently described and disclosed both the Vetericyn and Innovacyn
Agreements on page 64 of its Annual Report on Form 10-K for the period ending
March 31, 2010. The Company believes it has provided all required
disclosures regarding the two Agreements.
Item 13. Certain
Relationships, Related Transactions….page 75
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Comment
4:
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We
note your response to prior comment 5. Please tell
us:
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whether
Robert or Seamus Burlingame purchased any shares under their January 26,
2009 purchase agreements before their agreements were rescinded and
replaced;
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how
replacing the separate purchase agreements with a single new agreement
changed the purchase obligations of Robert and Seamus
Burlingame;
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whether
your disclosure of the purchase agreement includes all material terms; for
example, we note your response in prior comment 3 regarding restrictions
on the exercise of warrants purchased;
and
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how
you determined that Seamus Burlingame was not a related party given
Instruction 1(a)(iii) and Instruction 1(b)(i) to Regulation S-K Item
404(a).
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Response
4:
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No
shares were purchased by Robert or Seamus Burlingame under the rescinded
January 26, 2009 agreement.
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Replacing
the separate purchase agreements with a single new agreement did not affect the
purchase obligations of Robert or Seamus Burlingame. The Company
described the material change in terms between the agreements in its response
letter dated October 29, 2010 in response to Staff Comment 5. The
decision to switch from two agreements to one was simply a drafting
choice. The Company respectfully notes that a contract can consist of
one, two, five or ten separate documents but the contract itself will be
determined by the terms and not the form, or multiple forms in which it was
drafted. The Company respectfully believes that the drafting decision
to combine two documents into one is not important in determining the substance
of the contract.
The
Company believes it disclosed all material terms in its Current Report on Form
8-K filed February 27, 2009. In addition to describing material terms
in the body of the 8-K, the entire purchase agreement was included as Exhibit
10.4. Exhibit A to Exhibit 10.4 contained the warrants issued to
Robert and Seamus Burlingame that include the 4.99% limitation in Clause
6. We respectfully believe that the 4.99% is not a “restriction on
the exercise of warrants purchased” as stated by the Staff. The
holder of the warrants may exercise as much or as little of the warrant as the
holder chooses in its sole discretion. If the holder would acquire
more than 4.99% of the Company’s common stock as a result of the exercise, then
the holder may waive the provision and exercise the warrant to the extent they
choose. The 4.99% provision does not preclude the holder from
exercising the warrant and only imposes a requirement to notify the Company in
advance under certain circumstances. Thus, the 4.99% provision is a
notice and procedural restriction but does not affect the holder’s ability to
exercise the warrant at any time subject to the other terms of the
warrant. Accordingly, the Company does not believe the 4.99%
limitation to be a material term of the warrant because it does not affect the
time or economics of how or when the warrant can be exercised.
Seamus
Burlingame has never been an Officer, Director or Employee of the
Company. Although Robert and Seamus Burlingame are father and son,
Robert Burlingame is 75 years old and Seamus Burlingame, his adult son, does not
live in the same household. Additionally, at the time the Company
filed its Definitive Proxy on July 29, 2010, Robert Burlingame had resigned as a
Director of the Company. Robert Burlingame resigned from the Board as
a Director on February 10, 2010. Therefore, on July 29, 2010,
Seamus Burlingame was not related to any Officers or Directors of the
Company.
Seamus
Burlingame has only made one direct investment in the Company based on the
transaction he entered into on February 24, 2009. Such transaction
has been referred to repeatedly in the Company’s filings since February 24, 2009
and additionally in filings made by each of Robert and Seamus
Burlingame. Additionally, Seamus Burlingame has been identified by
name in the Company’s filings in connection with that one-time
investment. While we agree that the omission of the repetition of
that disclosure in one place in one filing was not in strict compliance with the
rules, we believe the totality of the Company’s disclosure and the Burlingame’s
filings have provided shareholders with numerous descriptions of the one-time
investment in early 2009 and that such filings include complete documentation
such that any investor or shareholder can easily ascertain any information about
the transaction necessary to make an informed decision about an investment with
the Company.
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Comment
6:
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We
note that you submitted a request for confidential treatment for three
exhibits filed with your Form 10-Q on November 4, 2010, Exhibits 10.44 to
10.46. We will address this request in a separate
letter. Please resolve those comments, if
any.
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Response
6:
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The
Company has not yet received any comments as of the date of this letter
but undertakes to work with the Staff to resolve any future
comments.
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Comment
7:
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Please
tell us how Exhibit 10.50 between you “and the Investors listed on
Schedule A” is enforceable given your response to prior comment 7 that
Schedule A was never completed. Please also tell us how this
affects your other disclosure, such as your risk factor
disclosure.
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Response
7:
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The
contract is enforceable because each of the Investors that would have been
listed on Schedule A signed the contract and paid the Company for their
respective securities purchased and the Company issued the securities as
contemplated by the contract. Furthermore, there were only two
investors to the document, each of whom were identified in the Recitals of
the contract and were included as signatories to the contract, thereby
including all the information that would otherwise have been included in
Schedule A. Furthermore, the Company respectfully notes that a
contract can be oral or partially written and it will remain an
enforceable contract particularly when all parties to the contract have
performed as intended. Consequently, Schedule A was not
necessary to the contract to make the contract
enforceable. Finally, the contract includes the following
clause which protects the enforceability of the remaining clauses of the
contract independent of Schedule A:
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8.7 Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
The
Company believes the contract is fully enforceable and the Company does not
believe that any of its other disclosure, including risk factor disclosure,
should be revised.
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Comment
8:
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We
note that your response to prior comment 8 did not clarify your current
subsidiaries or tell us how Exhibit 21.1 was consistent with your
disclosure in “Principle of Consolidation” on page 52. Thus, we
reissue the comment. We also note from page 8 of Exhibit 10.2
to the Form 8-K filed on May 6, 2010 that you are the majority owner of or
are in control relationship with MicroMed Laboratories, Inc. and L3
Pharmaceuticals, Inc. As part of your response, please explain
how your list of subsidiaries “was correct,” why the two disclosures were
inconsistent, and the reason for any changes in the
disclosure.
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Response
8:
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Per
Item 601(b)(21) of Regulation S-K, the Company is not required to include
subsidiaries which, when considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary as of the end of
the year covered by its report. Per Rule 1-02(w) of Regulation
S-X, a significant subsidiary is one that represents at least 10 percent
of the consolidated entity’s income or assets. It was disclosed
on page 8 of Exhibit 10.2 to the Form 8-K filed on May 6, 2010 that,
concerning both MicroMed Laboratories, Inc. and L3 Pharmaceuticals, Inc.,
each of these corporations were formed, but no shares have been
issued. Neither corporation has any activity nor do they hold
any assets. The Company believes that MicroMed Laboratories,
Inc. and L3 Pharmaceuticals, are not significant subsidiaries, and are not
required to be included in Exhibit
21.1.
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If you
have further questions or comments, please feel free to contact
us. We are happy to cooperate in any way we can.
Regards,
