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 December 31, 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
|
|
o
|
o
|
(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
February 3, 2010 the number of shares outstanding of the registrant’s common
stock, $0.0001 par value, was 26,486,922.
Index
|
|
Page
|
|
PART
I – FINANCIAL INFORMATION
|
3
|
|
|
|
|
Item 1.
Financial Statements
|
3
|
|
Condensed
Consolidated Balance Sheets
|
3
|
|
Condensed
Consolidated Statements of Operations
|
4
|
|
Condensed
Consolidated Statements of Cash Flows
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
16
|
|
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
|
24
|
|
Item 4.
Controls and Procedures
|
24
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
Item 1.
Legal Proceedings
|
25
|
|
Item 1A. Risk
Factors
|
25
|
|
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
|
25
|
|
Item 3.
Defaults Upon Senior Securities
|
25
|
|
Item 4.
Removed and Reserved
|
25
|
|
Item 5.
Other Information
|
25
|
|
Item 6.
Exhibits
|
25
|
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(In
thousands, except share and per share amounts)
PART
I: FINANCIAL INFORMATION
|
|
|
December
31,
2010
|
|
|
March
31,
2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
4,673 |
|
|
$ |
6,258 |
|
|
Accounts
receivable, net
|
|
|
1,722 |
|
|
|
1,416 |
|
|
Inventories,
net
|
|
|
615 |
|
|
|
565 |
|
|
Prepaid
expenses and other current assets
|
|
|
395 |
|
|
|
811 |
|
|
Total
current assets
|
|
|
7,405 |
|
|
|
9,050 |
|
|
Property
and equipment, net
|
|
|
957 |
|
|
|
1,108 |
|
|
Other
assets
|
|
|
51 |
|
|
|
60 |
|
|
Total
assets
|
|
$ |
8,413 |
|
|
$ |
10,218 |
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
786 |
|
|
$ |
981 |
|
|
Accrued
expenses and other current liabilities
|
|
|
1,186 |
|
|
|
1,078 |
|
|
Current
portion of long-term debt, net of discount
|
|
|
674 |
|
|
|
204 |
|
|
Derivative
liability
|
|
|
273 |
|
|
|
472 |
|
|
Total
current liabilities
|
|
|
2,919 |
|
|
|
2,735 |
|
|
Deferred
revenue
|
|
|
167 |
|
|
|
328 |
|
|
Long-term
debt, net of discount, less current portion
|
|
|
1,858 |
|
|
|
110 |
|
|
Put
warrant liability
|
|
|
750 |
|
|
|
— |
|
|
Total
liabilities
|
|
|
5,694 |
|
|
|
3,173 |
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares
issued and outstanding at December 31, 2010 (unaudited) and March 31,
2010
|
|
|
— |
|
|
|
— |
|
|
Common
stock, $0.0001 par value; 100,000,000 shares authorized, 26,463,726 and
26,161,428 shares issued and outstanding at December 31, 2010 (unaudited)
and March 31, 2010, respectively
|
|
|
3 |
|
|
|
3 |
|
|
Additional
paid-in capital
|
|
|
128,992 |
|
|
|
127,067 |
|
|
Accumulated
other comprehensive loss
|
|
|
(2,985 |
) |
|
|
(2,988 |
) |
|
Accumulated
deficit
|
|
|
(123,291 |
) |
|
|
(117,037 |
) |
|
Total
stockholders’ equity
|
|
|
2,719 |
|
|
|
7,045 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
8,413 |
|
|
$ |
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
December 31,
|
|
|
Nine
Months Ended
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$ |
2,003 |
|
|
$ |
1,357 |
|
|
$ |
6,330 |
|
|
$ |
4,327 |
|
|
Service
|
|
|
310 |
|
|
|
256 |
|
|
|
713 |
|
|
|
805 |
|
|
Total
revenues
|
|
|
2,313 |
|
|
|
1,613 |
|
|
|
7,043 |
|
|
|
5,132 |
|
|
Cost
of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
925 |
|
|
|
736 |
|
|
|
2,259 |
|
|
|
1,864 |
|
|
Service
|
|
|
239 |
|
|
|
186 |
|
|
|
573 |
|
|
|
659 |
|
|
Total
cost of revenues
|
|
|
1,164 |
|
|
|
922 |
|
|
|
2,832 |
|
|
|
2,523 |
|
|
Gross
profit
|
|
|
1,149 |
|
|
|
691 |
|
|
|
4,211 |
|
|
|
2,609 |
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
467 |
|
|
|
372 |
|
|
|
1,416 |
|
|
|
1,676 |
|
|
Selling,
general and administrative
|
|
|
2,760 |
|
|
|
2,324 |
|
|
|
8,914 |
|
|
|
7,494 |
|
|
Total
operating expenses
|
|
|
3,227 |
|
|
|
2,696 |
|
|
|
10,330 |
|
|
|
9,170 |
|
|
Loss
from operations
|
|
|
(2,078 |
) |
|
|
(2,005 |
) |
|
|
(6,119 |
) |
|
|
(6,561 |
) |
|
Interest
expense
|
|
|
(109 |
) |
|
|
(2 |
) |
|
|
(256 |
) |
|
|
(9 |
) |
|
Interest
income
|
|
|
2 |
|
|
|
— |
|
|
|
3 |
|
|
|
1 |
|
|
Change
in fair value of derivative liability
|
|
|
(55 |
) |
|
|
625 |
|
|
|
199 |
|
|
|
(132 |
) |
|
Other
income (expense), net
|
|
|
10 |
|
|
|
36 |
|
|
|
(81 |
) |
|
|
(79 |
) |
|
Net
loss
|
|
$ |
(2,230 |
) |
|
$ |
(1,346 |
) |
|
$ |
(6,254 |
) |
|
$ |
(6,780 |
) |
|
Net
loss per common share: basic and diluted
|
|
$ |
(0.08 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.30 |
) |
|
Weighted-average
number of shares used in per common share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
26,431 |
|
|
|
24,647 |
|
|
|
26,323 |
|
|
|
22,272 |
|
|
Other
comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,230 |
) |
|
$ |
(1,346 |
) |
|
$ |
(6,254 |
) |
|
$ |
(6,780 |
) |
|
Foreign
currency translation adjustments
|
|
|
(20 |
) |
|
|
(5 |
) |
|
|
3 |
|
|
|
108 |
|
|
Other
comprehensive loss
|
|
$ |
(2,250 |
) |
|
$ |
(1,351 |
) |
|
$ |
(6,251 |
) |
|
$ |
(6,672 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
|
Nine
Months Ended
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,254 |
) |
|
$ |
(6,780 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
282 |
|
|
|
332 |
|
|
Stock-based
compensation
|
|
|
1,839 |
|
|
|
1,143 |
|
|
Change
in fair value of derivative liability
|
|
|
(199 |
) |
|
|
132 |
|
|
Non-cash
interest expense
|
|
|
103 |
|
|
|
— |
|
|
Foreign
currency transaction losses (gains)
|
|
|
4 |
|
|
|
(17 |
) |
|
Loss
on disposal of assets
|
|
|
3 |
|
|
|
156 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(304 |
) |
|
|
(134 |
) |
|
Inventories
|
|
|
(53 |
) |
|
|
(202 |
) |
|
Prepaid
expenses and other current assets
|
|
|
415 |
|
|
|
395 |
|
|
Accounts
payable
|
|
|
(138 |
) |
|
|
(296 |
) |
|
Accrued
expenses and other liabilities
|
|
|
(53 |
) |
|
|
170 |
|
|
Net
cash used in operating activities
|
|
|
(4,355 |
) |
|
|
(5,101 |
) |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Change
in long-term deposits
|
|
|
10 |
|
|
|
(47 |
) |
|
Purchases
of property and equipment
|
|
|
(73 |
) |
|
|
(74 |
) |
|
Net
cash used in investing activities
|
|
|
(63 |
) |
|
|
(121 |
) |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from the issuance of common stock, net of offering costs
|
|
|
— |
|
|
|
7,155 |
|
|
Proceeds
from the exercise of common stock options and warrants
|
|
|
29 |
|
|
|
1,576 |
|
|
Proceeds
from issued debt
|
|
|
3,000 |
|
|
|
— |
|
|
Principal
payments on debt
|
|
|
(202 |
) |
|
|
(299 |
) |
|
Payments
on capital lease obligations
|
|
|
— |
|
|
|
(6 |
) |
|
Net
cash provided by financing activities
|
|
|
2,827 |
|
|
|
8,426 |
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
6 |
|
|
|
33 |
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1,585 |
) |
|
|
3,237 |
|
|
Cash
and equivalents, beginning of period
|
|
|
6,258 |
|
|
|
1,921 |
|
|
Cash
and equivalents, end of period
|
|
$ |
4,673 |
|
|
$ |
5,158 |
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
153 |
|
|
$ |
9 |
|
|
Equipment
financed
|
|
$ |
67 |
|
|
$ |
155 |
|
|
Obligations
settled with common stock
|
|
$ |
57 |
|
|
$ |
417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes
OCULUS
INNOVATIVE SCIENCES, INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1. Organization and Summary of Significant Accounting
Policies
Organization
Oculus
Innovative Sciences, Inc. (the “Company”) was incorporated under the laws of the
State of California in April, 1999 and was reincorporated under the laws of the
State of Delaware in December, 2006. The Company’s principal office is located
in Petaluma, California. The Company develops, manufactures and markets a
family of 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
December 31, 2010 and for the three and nine months then ended have been
prepared in accordance with the accounting principles generally accepted in the
United States of America for interim financial information and pursuant to the
instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and
Exchange Commission (“SEC”) and on the same basis as the annual audited
consolidated financial statements. The unaudited condensed consolidated balance
sheet as of December 31, 2010, condensed consolidated statements of operations
for the three and nine months ended December 31, 2010 and 2009, and the
condensed consolidated statements of cash flows for the nine months ended
December 31, 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 and nine
months ended December 31, 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 condensed 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 $54,000 and $99,000,
which are included in accounts receivable, net in the accompanying December 31,
2010 and March 31, 2010 condensed consolidated balance sheets,
respectively. The reserve for excess and obsolete inventory balances
amounted to $140,000 and $143,000, which are included in inventories, net in the
accompanying December 31, 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 condensed consolidated balance sheets at
December 31, 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 losses of $11,000 and $1,000 for the three
months ended December 31, 2010 and 2009, respectively. The Company
recorded foreign currency transaction (losses) gains of ($4,000) and $17,000 for
the nine months ended December 31, 2010 and 2009, respectively. The related
(losses) gains were recorded in other income and expense, net, in the
accompanying condensed consolidated statements of operations.
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 and diluted net loss per share
for the three and nine months ended December 31, 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):
|
|
|
December
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Options
to purchase common stock
|
|
|
4,322 |
|
|
|
3,232 |
|
|
Restricted
stock units
|
|
|
— |
|
|
|
30 |
|
|
Warrants
to purchase common stock
|
|
|
9,370 |
|
|
|
10,380 |
|
|
|
|
|
13,692 |
|
|
|
13,642 |
|
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 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 as either an asset or a liability. The
Company assesses classification of its freestanding derivatives at each
reporting date to determine whether a change in classification between assets
and liabilities is required. The Company determined that its freestanding
derivatives, which principally consist of warrants to purchase common stock,
satisfied the criteria for classification as equity instruments at December 31,
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 December
31, 2010 using
|
|
| |
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
| |
|
|
|
|
Quoted prices in
|
|
|
other
|
|
|
|
Significant
|
|
| |
|
|
|
|
active markets for
|
|
|
observable
|
|
|
|
unobservable
|
|
| |
|
December
31,
|
|
|
identical assets
|
|
|
inputs
|
|
|
|
Inputs
|
|
| |
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
|
(Level 3)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrant obligations (Note 5)
|
|
|
$273
|
|
|
|
|
|
|
|
|
—
|
|
|
|
$273
|
|
Management
has evaluated subsequent events or transactions occurring through the date the
financial statements were issued.
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.
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
During
the three and nine months ended December 31, 2010, the Company incurred a net
loss of $2,230,000 and $6,254,000 respectively. At December 31, 2010, the
Company’s accumulated deficit amounted to $123,291,000. During the nine months
ended December 31, 2010, net cash used in operating activities amounted to
$4,355,000. At December 31, 2010, the Company’s working capital amounted to
$4,486,000. 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. (as
discussed in Note 3) to borrow up to an aggregate of up to $3,000,000. On
May 3, 2010, the Company borrowed $2,000,000 and on November 17, 2010 the
Company borrowed the remaining $1,000,000. The effective interest rate on the
loan is 13.3%.
During
the nine months ended December 31, 2010, the Company received $29,000 in
connection with the exercise of 71,369 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 January 1, 2012.
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.
Inventories
Inventories
consisted of the following (in thousands):
| |
|
December
31,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Raw
materials
|
|
$ |
463 |
|
|
$ |
406 |
|
|
Finished
goods
|
|
$ |
293 |
|
|
$ |
302 |
|
|
|
|
$ |
756 |
|
|
$ |
708 |
|
|
Less:
inventory allowances
|
|
$ |
(141 |
) |
|
$ |
(143 |
) |
|
|
|
$ |
615 |
|
|
$ |
565 |
|
Notes
Payable
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, a second tranche of $1,000,000. On May 3,
2010, the Company borrowed $2,000,000 on the first tranche and on November 17,
2010 the Company borrowed $1,000,000 on the second tranche. The loan
is secured by the assets of the Company excluding intellectual property under
certain circumstances. Related to the first tranche, the Company made eight
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. Related to the second tranche, the Company pays
monthly interest only payments set at $8,330 through May 1, 2011. Thereafter,
the Company will make interest and principal payments of $37,500 per month
through November 1, 2013. Additionally, the Company will make a final balloon
payment related to the first tranche of $132,000 on June 1, 2013 and will make a
final balloon payment related to the second tranche of $66,000 on November 1,
2013. The effective interest rate on the first and second tranche is
13.3%. During the three and nine months ended December 31, 2010, the
Company made interest payments of $63,000 and $147,000,
respectively.
Additionally,
in connection with the Agreements, the Company issued warrants to Venture
Lending & Leasing, Inc. for the purchase of 250,000 shares of the Company’s
common stock (the “Warrants”). The Warrants may be exercised for a cash
payment of $2.00 per share of common stock. The Warrants are 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 $750,000 cash. 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 $750,000 cash value of the warrant
was recorded as a put warrant liability and a corresponding amount of $750,000
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 and nine months ended December
31, 2010, the Company recorded $43,000 and $103,000, respectively, of non-cash
interest expense related to this to this note. The remaining balance of
the notes amounted to $3,000,000, and the carrying value, net of $647,000
discount, amounted to $2,353,000, at December 31, 2010, of which $632,000, net
of $233,000 discount, is included in the current portion of long-term debt in
the accompanying condensed consolidated balance sheet.
On August
12, 2010, the Company entered into a note agreement for principal amounting to
$40,000 with an interest rate of 11.99% per year. This instrument was issued in
connection with the financing of an automobile. During the three months ended
December 31, 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 $35,000 at December 31, 2010 of which $6,000 is
included in the current portion of long-term debt in the accompanying condensed
consolidated balance sheet.
On
November 30, 2010, the Company entered into a note agreement for principal
amounting to $27,000 with an interest rate of 8.90% per year. This instrument
was issued in connection with the financing of an automobile. During the three
months ended December 31, 2010, the Company did not make principal or interest
payments related to this note. The remaining balance of this note amounted to
$27,000 at December 31, 2010 of which $5,000 is included in the current portion
of long-term debt in the accompanying condensed consolidated balance
sheet.
Note
4. Commitments and Contingencies
Legal
Matters
In
February 2007, the Company’s Mexico subsidiary served Quimica Pasteur (“QP”), a
former distributor of the Company’s products in Mexico, with a claim alleging
breach of contract under a note made by QP. A trial date has not yet been
set.
The
Company, from time to time, is involved in legal matters arising in the ordinary
course of its business including matters involving proprietary technology. While
management believes that such matters are currently not material, there can be
no assurance that matters arising in the ordinary course of business for which
the Company is or could become involved in litigation, will not have a material
adverse effect on its business, financial condition or results of
operations.
Employment
Agreements
As of
December 31, 2010, the Company had employment agreements with five of its key
executives. The agreements provide, among other things, for the payment of nine
to twenty-four months of severance compensation for terminations under certain
circumstances. With respect to these agreements, at December 31, 2010, potential
severance benefits amounted to $1,883,000 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, during the nine months ended December 31, 2010, the Company
recorded as revenue the remaining balance of the unamortized upfront fees which
amounted to $210,000. For the three months ended December 31, 2010 and
2009, the Company recorded revenues of $7,000 and $24,000, respectively, related
to the upfront payments. For the nine months ended December 31, 2010 and
2009, the Company recorded revenues of $230,000 and $72,000, respectively,
related to the upfront payments. These amounts were included in product revenue
in the accompanying condensed consolidated statements of operations. At
December 31, 2010, deferred revenue related to the remaining agreement amounted
to $195,000 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 the Company’s Vetericyn
products. VetCure, Inc. later changed its name to Vetericyn, Inc. This agreement
was amended on February 24, 2009, July 24, 2009, June 1, 2010 and September
1, 2010. At the time of each of the 2009 transactions, Vetericyn was
wholly-owned by Robert Burlingame, who was also a Director at the time of the
transactions. Mr. Burlingame resigned from the Board on February 10, 2010
however, as of December 31, 2010, he continues to own a significant amount of
the Company’s common stock. 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
Seamus Burlingame and Robert Burlingame. Robert Burlingame was a
Director at the time of the transaction but subsequently resigned from the Board
on February 10, 2010. Seamus Burlingame is Robert Burlingame’s son.
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 nine 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 nine 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 nine 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 Microcyn over-the-counter liquid and gel
products on a non-exclusive basis. At the time of the 2009 transaction,
V&M Industries, Inc. was wholly-owned by Robert Burlingame, who was also a
Director at the time of the transaction. V&M Industries, Inc.
subsequently changed its name to Innovacyn, Inc. On June 1, 2010, and
September 1, 2010, Innovacyn and the Company amended this agreement granting
Innovacyn the exclusive right to sell certain over-the-counter products.
Additionally, once certain milestones are met, but no later than July 1, 2011,
the Company will share profits related to Vetericyn and Microcyn
over-the-counter sales. During the three months ended December
31, 2010 and 2009, the Company recorded revenue related to the commercial
agreements in the amounts of $292,000 and $165,000, respectively. During
the nine months ended December 31, 2010 and 2009, the Company recorded revenue
related to these agreements in the amounts of $1,400,000 and $256,000,
respectively. This revenue is included in product revenues in the accompanying
condensed consolidated statements of operations. Additionally, the
Company had accounts receivables related to these agreements in the amount of
$69,000 which is included in the accompanying December 31, 2010 condensed
consolidated balance sheet.
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
warrant obligations are adjusted to fair value at the end of each reporting
period with the change in value reported in the statement of operations. Such
fair values were estimated using the Black-Scholes valuation model. Although the
Company determined the common stock warrants include an implied down-side
protection feature it performed a Monte-Carlo simulation and concluded that the
value of the feature is de minimis and the use of the Black-Scholes valuation
model is considered to be a reasonable method to value the warrants. The Company
will continue to adjust the warrant liability for changes in fair value until
the earlier of the exercise, at which time the liability will be reclassified to
stockholders’ equity, or expiration of the warrants.
The
derivative liability was valued using the Black-Scholes option valuation model
and the following assumptions on the following dates:
| |
|
December
31,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2010
|
|
|
Expected
life
|
|
2.12
years
|
|
|
2.37
years
|
|
|
Risk-free
interest rate
|
|
|
0.61 |
% |
|
|
1.02 |
% |
|
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
|
Volatility
|
|
|
84 |
% |
|
|
84 |
% |
|
Warrants
outstanding
|
|
|
725,866 |
|
|
|
724,188 |
|
|
Fair
value of warrants
|
|
$ |
273,000 |
|
|
$ |
472,000 |
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded a loss of $55,000 and a gain of $199,000 due to a change in the
fair value of the Company’s derivative liability for the three and nine months
ended December 31, 2010, respectively. The Company recorded a gain of
$625,000 and a loss of $132,000 due to a change in the fair value of the
Company’s derivative liability for the three and nine months ended December 31,
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 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
December 31, 2010 and 2009, the Company issued 12,396 and 9,653 shares of common
stock, respectively, in connection with this agreement. During the nine months
ended December 31, 2010 and 2009, the Company issued 33,087 and 39,753 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 December 31, 2010 and 2009,
the Company recorded $20,000 and $21,000 of compensation expense related to this
agreement, respectively. During the nine months ended December 31, 2010 and
2009, the Company recorded $61,000 and $62,000 of compensation expense related
to this agreement, 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 as compensation for services
provided. 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 nine months ended December 31, 2010, the
Company issued 37,842 shares of common stock. During the nine months ended
December 31, 2010, the Company recorded $71,000 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 nine months ended
December 31, 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 nine months ended December 31, 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.
On
September 9, 2010, the Company issued common stock to Vista Partners, for
providing financial advisory services. The Company agreed to pay Vista Partners
55,000 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 $90,000. Accordingly, during the nine months
ended December 31, 2010, the Company recorded $90,000 of expense related to this
agreement which was recorded as selling, general and administrative expense in
the accompanying condensed consolidated statement of operations.
Common
Stock Issued to Settle Obligations
During
the three months ended December 31, 2010, the Company issued shares of common
stock to a vendor to settle outstanding accounts payable. The Company entered
into a settlement agreement with this vendor and issued a total of 35,000 shares
with a fair value equal to the outstanding payable, or $57,000.
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
|
|
Nine Months
|
|
| |
|
Ended
|
|
Ended
|
|
| |
|
December
31,
|
|
December
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Cost
of service revenue
|
|
$ |
13 |
|
|
$ |
5 |
|
|
$ |
43 |
|
|
$ |
15 |
|
|
Research
and development
|
|
$ |
46 |
|
|
$ |
18 |
|
|
$ |
149 |
|
|
$ |
77 |
|
|
Selling,
general and administrative
|
|
$ |
273 |
|
|
$ |
182 |
|
|
$ |
1,270 |
|
|
$ |
504 |
|
|
Total
stock-based compensation
|
|
$ |
332 |
|
|
$ |
205 |
|
|
$ |
1,462 |
|
|
$ |
596 |
|
The fair
value of employee stock options was estimated using the following
weighted-average assumptions:
|
|
|
Three
Months
Ended
December 31,
|
|
|
Nine
Months
Ended
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Expected
life
|
|
5.7
years
|
|
|
5.7
years
|
|
|
5.58
years
|
|
|
5.9
years
|
|
|
Risk-free
interest rate
|
|
|
2.01% |
|
|
|
2.69% |
|
|
|
1.98% |
|
|
|
2.12% |
|
|
Dividend
yield
|
|
|
0.00% |
|
|
|
0.00% |
|
|
|
0.00% |
|
|
|
0.00% |
|
|
Volatility
|
|
|
84% |
|
|
|
84% |
|
|
|
84% |
|
|
|
85% |
|
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. 110 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 December 31, 2010 was 2.48%.
At
December 31, 2010, there were unrecognized compensation costs of $1,742,000
related to stock options which is expected to be recognized over a
weighted-average amortization period of 1.78 years.
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 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 December 31, 2010 and changes during the nine
months then ended is presented below:
| |
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Aggregate
|
|
| |
|
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
| |
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
Options
|
|
(000)
|
|
|
Price
|
|
|
Term
|
|
|
$0
|
|
|
Outstanding
at April 1, 2010
|
|
|
3,987 |
|
|
$ |
2.96 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
600 |
|
|
|
1.93 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(71 |
) |
|
|
0.41 |
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(194 |
) |
|
|
5.15 |
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2010
|
|
|
4,322 |
|
|
$ |
2.76 |
|
|
|
7.59 |
|
|
$ |
1,308 |
|
|
Exercisable
at December 31, 2010
|
|
|
2,691 |
|
|
$ |
3.39 |
|
|
|
6.94 |
|
|
$ |
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value is calculated as the difference between the exercise
price of the stock options and the underlying fair value of the Company’s common
stock ($1.69) for stock options that were in-the-money as of December 31,
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
At March
31, 2010, the Company 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,
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
three and nine months ended December 31, 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, 2010, 2009 and 2008 and may be subject to audit for
amounts relating to net operating loss carryforwards generated in periods prior
to March 31, 2008. 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
|
|
|
Nine
Months
|
|
| |
|
Ended
|
|
|
Ended
|
|
| |
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
U.S.
|
|
$ |
477 |
|
|
$ |
307 |
|
|
$ |
1,915 |
|
|
$ |
594 |
|
|
Mexico
|
|
|
1,082 |
|
|
|
878 |
|
|
|
3,135 |
|
|
|
2,976 |
|
|
Europe
and Other
|
|
|
444 |
|
|
|
172 |
|
|
|
1,280 |
|
|
|
757 |
|
|
|
|
$ |
2,003 |
|
|
$ |
1,357 |
|
|
$ |
6,330 |
|
|
$ |
4,327 |
|
The
Company’s service revenues amounted to $310,000 and $256,000 for the three
months ended December 31, 2010 and 2009, respectively. The Company’s
service revenues amounted to $713,000 and $805,000 for the nine months ended
December 31, 2010 and 2009, respectively.
Note
10. Significant Customer Concentrations
One
customer accounted for $292,000, or 13%, of revenue for the three months ended
December 31, 2010, and the same customer accounted for $1,406,000, or 20%, of
revenue for the nine months ended December 31, 2010.
At
December 31, 2010, one customer had an accounts receivable balance of $452,000,
or 24% of accounts receivable and at March 31, 2010, three customers had
accounts receivables balances totalling $595,000, or 42% of accounts
receivable.
Note
11. Subsequent Events
On
January 28, 2011, the Company entered into an agreement with a distributor in
China to sell specific Company products into the People’s Republic of
China. Pursuant to the agreement, the distributor will pay a $350,000
non-refundable upfront payment by February 23, 2011, for which they will be
given exclusivity to sell these products for the first contract year. In order
to maintain exclusivity in subsequent years, the distributor will need to
meet minimum purchase requirements each contract year. The initial term of the
contract is for five years cancellable if certain conditions are not met.
Additionally, the Company will receive a prepayment of $180,000 which will be
applied as payment to future product shipments.
The following discussion of our
financial condition and results of operations should be read in
conjunction with the condensed consolidated financial statements and notes to
those statements included elsewhere in this Quarterly Report on Form 10-Q as of
December 31, 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 data, 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 chronic 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™ (brand eventually
changed to Microdacyn60™) 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 32 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) clearances for use as a
medical device in wound cleaning, or debridement, lubricating, moistening and
dressing, including traumatic wounds and acute and chronic dermal lesions. On
May 27, 2009, we received a 510(k) clearance from the FDA to market our
Microcyn Skin and Wound HydroGel™ as both a prescription and over-the-counter
formulation. Additionally, on June 4, 2009, we received an expanded
510(k) label clearance from the FDA to market our Microcyn Skin and Wound 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 as well as to dermatologists
for treatment of various skin afflictions. We currently make Microcyn
Technology-based human wound care products available, both as prescription and
over-the-counter products, under our six 510(k) clearances 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. Additionally, a family of animal healthcare products branded
Vetericyn® are being sold in the U.S. and will shortly be introduced into
Europe, Canada and Asia.
In the
quarter ending December 31, 2008, we began selling Microcyn 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.
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, July 24, 2009, June 1, 2010 and September 1, 2010. At the time of
the 2009 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, however he continues to own a significant
position in our common stock. Pursuant to the agreement, we provide
Vetericyn, Inc. with bulk product and Vetericyn, Inc. bottles, packages, and
sells Vetericyn 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., but no later than July 1, 2011, we will share profits 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. At the time of the transaction, V&M
Industries, Inc. was wholly-owned by Robert Burlingame, who was also a Director
at the time of the transaction. V&M Industries, Inc. subsequently
changed its name to Innovacyn, Inc. On June 1, 2010 and September 1,
2010 we entered into amendments to this agreement. Once certain
milestones are met by Innovacyn, Inc., but no later than July 1, 2011, we will
share profits generated by Innovacyn, Inc. On May 13, 2010, Innovacyn, Inc.
received notice from Health Canada that 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) clearance to market our product
for use as an oral rinse in liquid form and for oral mucositis in a gel
form.
On
November 8, 2010, we announced a definitive agreement with Onset Therapeutics,
now called PreCision Dermatology, Inc. Under this agreement,
PreCision Dermatology intends to combine the currently approved Microcyn
hydrogel with their new skin barrier product into a kit, targeting sales to
patients with atopic dermatitis and related conditions. PreCision
Dermatology has about 35 salespeople along with a complete line of dermatology
products sold throughout the U.S and expects to launch the kit in the first
quarter of 2011.
We have
announced the commercialization of a Microcyn hydrogel for both wound care and
dermatology, which received several 510(k) clearances in the U.S through a
combination of a contract and commissioned sales force. 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 exclusivity of this
distribution agreement and 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 December 31, 2010 and 2009
Revenues
Total
revenues were $2,313,000 during the quarter ended December 31, 2010 compared to
$1,613,000 in the prior year period. Product revenues increased $646,000, or
48%, with increases in the U.S, Mexico, Europe and Middle East offset by a
slight decline in India.
Product
revenue in the U.S. increased $170,000, or 55% with growth in animal wound care,
related to television advertising and sales initiatives sponsored by Innovacyn,
Inc. and in professional human wound care.
Revenue
in Mexico increased 23% from the prior year period with 41% growth in the
smaller 120 and 240 ml units, partially offset by 4% decline in the 5 liter
units. Due to the higher margins of the smaller units, our sales
force has focused on promoting the growth of the smaller units sold to
pharmacies. The unit sales of our 120 & 240-milliliter presentation,
which is primarily sold to pharmacies in Mexico, increased 33% from the prior
year to a monthly average of 46,621 units compared to 35,095 in the same period
last year.
Europe
and Rest of World revenue increased $272,000, up 158% over the prior year
period, caused by strong growth in sales to the Middle East and moderate growth
in Europe offset by a slight decline in India.
The
following table shows our product revenues by geographic region:
|
|
|
Three
Months
Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
Increase
|
|
|
U.S.
|
|
$ |
477,000 |
|
|
$ |
307,000 |
|
|
$ |
170,000 |
|
|
|
55 |
% |
|
Europe
and Rest of World
|
|
|
444,000 |
|
|
|
172,000 |
|
|
|
272,000 |
|
|
|
158 |
% |
|
Mexico
|
|
|
1,082,000 |
|
|
|
878,000 |
|
|
|
204,000 |
|
|
|
23 |
% |
|
Total
|
|
$ |
2,003,000 |
|
|
$ |
1,357,000 |
|
|
$ |
646,000 |
|
|
|
48 |
% |
Service
revenue increased $54,000 when compared to the prior year period due to an
increase in the number of tests provided by our services business.
Gross
Profit
We
reported gross profit from our Microcyn products business of $1,078,000, or 54%
of product revenues, during the three months ended December 31, 2010, compared
to a gross profit of $621,000, or 46%, in the prior year period. The improved
gross margins represent higher margins in U.S., partially offset by lower gross
margins in Europe and Rest of World and Mexico. The higher margins in the U.S.
are due to higher units sold and product mix for certain U.S. sales.
Mexico’s margins excluding their export sales were 71% during the quarter
ended December 31, 2010, compared to 80% in the prior year period due to lower
pricing and volume of the 5 liter product.
We expect
our gross margins to improve in the U.S and Europe as our unit volume increases
in U.S. and Europe.
Research
and Development Expense
Research
and development expense increased to $467,000 for the three months ended
December 31, 2010, compared to $372,000 in the prior year period. Most of the
increase was attributable to studies needed for regulatory approvals and the
manufacturing process of new products and approvals.
We expect
that our research and development expense will slightly increase over the next
few quarters as we incur additional expenses related to laboratory tests,
clinical trials and the development and approval of new products.
Selling,
General and Administrative Expense
Selling,
general and administrative expense increased $436,000, or 19%, to $2,760,000
during the three months ended December 31, 2010, from $2,324,000 during the
three months ended December 31, 2009. Primarily, this increase was due to higher
sales related costs in U.S. and Mexico and higher compensation costs in the
U.S. 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 incur additional expenses to expand our sales efforts in the U.S., Europe
and Mexico markets.
Interest
income and expense and other income and expense, net
Interest
expense increased $107,000 to $109,000 during the three months ended December
31, 2010 from $2,000 during the three months ended December 31, 2009. Primarily
this increase was due to $65,000 of cash interest incurred and $43,000 of
non-cash interest incurred during the three months ended December 31, 2010. This
interest is primarily related to $2,000,000 borrowed on May 3, 2010 and the
$1,000,000 borrowed on November 17, 2010. Interest income showed no material
change from the same period last year.
Other
income and expense, net decreased $26,000 to net other income of $10,000 for the
three months ended December 31, 2010, from net other income of $36,000 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 December 31, 2010 we recorded a change in the fair value
of our derivative liability of $55,000 and as a result we recorded this loss as
a non-cash expense. For the three months ended December 31, 2009 we recorded a
non cash gain of $625,000, due to change in fair value of the derivative
liability.
Net
Loss
Net loss
for the three months ended December 31, 2010 was $2,230,000, up $884,000 from
$1,346,000 for the same period in the prior year. The stock compensation charges
were $352,000 and $236,000 for the quarters ending December 31, 2010 and 2009
respectively.
Comparison
of Nine Months Ended December 31, 2010 and 2009
Revenues
Total
product revenues were $6,330,000 during the nine months ended December 31, 2010
compared to $4,327,000 in the prior year period. Product revenues increased
$2,003,000, or 46%, with increases in the U.S., Europe and the Middle
East.
Product
revenue in the U.S. increased $1,321,000 with most of the growth in animal wound
care, related to television advertising and sales initiatives sponsored by
Innovacyn, Inc. along with increases in the human wound care.
Revenue
in Mexico increased 5% from the prior year period, which had abnormally high
sales last year, caused by the swine flu epidemic in Mexico in the first fiscal
quarter last year. Total sales of our 120 & 240-milliliter
presentation, which is primarily sold to pharmacies in Mexico, increased 4% from
the prior year. The average prices increased while the number of
units sold was about flat. Sales to hospitals increased 8% with price
increases offsetting a decline in units sold. We believe that during the
nine months ended December 31, 2009, the swine flu epidemic in Mexico resulted
in sales of $300,000 to $400,000 higher than normal.
Europe
and Rest of World revenue increased $523,000, up 69% over the prior year period,
due to higher sales in Europe and the Middle East. During the nine
months ended December 31, 2010, we recorded product revenue of $210,000 related
to China which was the result of the conversion of our exclusive relationship
with China Bao Tai to a non-exclusive relationship and recognition of deferred
revenue related to an upfront payment from China Bao Tai.
The
following table shows our product revenues by geographic region:
|
|
|
Nine
Months
Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Increase
|
|
|
Increase
|
|
|
U.S.
|
|
$ |
1,915,000 |
|
|
$ |
594,000 |
|
|
$ |
1,321,000 |
|
|
|
222 |
% |
|
Europe
and Rest of World
|
|
|
1,280,000 |
|
|
|
757,000 |
|
|
|
523,000 |
|
|
|
69 |
% |
|
Mexico
|
|
|
3,135,000 |
|
|
|
2,976,000 |
|
|
|
159,000 |
|
|
|
5 |
% |
|
Total
|
|
$ |
6,330,000 |
|
|
$ |
4,327,000 |
|
|
$ |
2,003,000 |
|
|
|
46 |
% |
Gross
Profit
We
reported gross profit from our Microcyn products business of $4,071,000, or 64%
of product revenues, during the nine months ended December 31, 2010, compared to
a gross profit of $2,463,000, or 57%, in the prior year period. The higher 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
75% during the nine months ended December 31, 2010, compared to 80% 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 $260,000, or 16%, to $1,416,000 for the nine
months ended December 31, 2010, compared to $1,676,000 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 commercialization efforts in
U.S.
We expect
that our research and development expense will slightly increase over the next
few quarters as we incur additional expenses related to laboratory tests,
clinical trials and the development and approval of new products.
Selling,
General and Administrative Expense
Selling,
general and administrative expense increased $1,420,000, or 19%, to $8,914,000
during the nine months ended December 31, 2010, from $7,494,000 during the nine
months ended December 31, 2009. Primarily, this increase was due to higher sales
and marketing costs in Mexico, greater stock compensation costs, up by $595,000
and higher salary and bonus 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 incur additional expenses to expand our sales efforts in the U.S., Europe
and Mexico markets.
Interest
income and expense and other income and expense, net
Interest
expense increased $247,000 to $256,000 during the nine months ended December 31,
2010 from $9,000 during the nine months ended December 31, 2009. Primarily this
increase was due to $153,000 of cash interest incurred and $103,000 of non-cash
interest incurred during the nine months ended December 31, 2010. This interest
is primarily related to $2,000,000 borrowed on May 3, 2010 and the $1,000,000
borrowed on November 17, 2010. Interest income showed no material change from
the same period last year.
Other
income and expense, net increased $2,000 to net other expense of $81,000 for the
nine months ended December 31, 2010, from net other expense of $79,000 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 nine months ended December 31, 2010 we recorded a non-cash gain on the fair
value of our derivative liability of $199,000 and as a result we recorded this
amount as income. For the nine months ended December 31, 2009 we recorded a
non-cash expense of $132,000, due to change in fair value of the derivative
liability.
Net
Loss
Net loss
for the nine months ended December 31, 2010 was $6,254,000, down $526,000 from
$6,780,000 for the same period in the prior year. The stock compensation charges
were $1,839,000 and $1,143,000 for the nine months ended in December 31, 2010
and 2009, respectively.
Sources
of Liquidity
As of
December 31, 2010, we had cash and cash equivalents of $4,673,000. 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 $114,456,000 (net proceeds) of our common and convertible preferred
stock. This includes:
|
|
·
|
net
proceeds of $21,936,000 raised in our initial public offering on
January 30, 2007;
|
|
|
·
|
net
proceeds of $9,124,000 raised in a private placement of common shares on
August 13, 2007;
|
|
|
·
|
net
proceeds of $12,613,000 raised through a registered direct placement from
March 31, 2008 to April 1, 2008;
|
|
|
·
|
net
proceeds of $1,514,000 raised through a private placement on
February 6, 2009;
|
|
|
·
|
net
proceeds of $948,000 from a private placement on February 24,
2009;
|
|
|
·
|
net
proceeds of $2,000,000 from a private placement on June 1,
2009;
|
|
|
·
|
net
proceeds of $5,411,000 from a registered direct offering on July 30, 2009;
and
|
|
|
·
|
proceeds
of $4,239,000 received from the exercise of common stock purchase warrants
and options.
|
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
$3,000,000.
Cash Flows
As of
December 31, 2010, we had cash and cash equivalents of $4,673,000, compared to
$6,258,000 at March 31, 2010.
Net cash
used in operating activities during the nine months ended December 31, 2010 was
$4,355,000 primarily due to the $6,254,000 net loss for the period which
was offset in part by non-cash transactions during the nine months ended
December 31, 2010, including $1,839,000 of stock-based
compensation.
Net cash
used in operating activities during the nine months ended December 31, 2009 was
$5,101,000 primarily due to the $6,780,000 net loss for the period. The use
of cash was offset in part by non-cash charges during the year ended December
31, 2009, including $132,000 loss on the fair value of warrants, $1,143,000 of
stock-based compensation, and $282,000 of depreciation and
amortization.
Net cash
used in investing activities was $63,000 for the nine months ended December 31,
2010 and $121,000 for the nine months ended December 31, 2009, primarily for the
purchase of equipment
Net cash
provided by financing activities was $2,827,000 during the nine months ended
December 31, 2010, primarily due to the issuance of $3,000,000 of debt which was
offset by payments of $202,000 of outstanding debt during the period. We also
received $29,000 in connection with the exercise of stock options.
Net cash
provided by financing activities was $8,426,000 for the nine months ended
December 31, 2009. We received net proceeds from the sale of common stock during
this period of $7,155,000. Additionally, we received proceeds of
$1,576,000 related to the exercise of common stock purchase warrants and stock
options.
Operating
Capital and Capital Expenditure Requirements
We
incurred a net loss of $6,254,000 for the nine months ended December 31, 2010.
At December 31, 2010 our accumulated deficit amounted to $123,291,000 and at
March 31, 2010 our accumulated deficit amounted to $117,037,000. At December 31,
2010, our working capital amounted to $4,486,000.
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.
Our
future funding requirements will depend on many factors, including:
|
|
•
|
the
scope, rate of progress and cost of our clinical trials and other research
and development activities;
|
|
|
•
|
future
clinical trial results;
|
|
|
•
|
the
terms and timing of any collaborative, licensing and other arrangements
that we may establish;
|
|
|
•
|
the
cost and timing of regulatory
approvals;
|
|
|
•
|
the
cost and delays in product development as a result of any changes in
regulatory oversight applicable to our
products;
|
|
|
•
|
the
cost and timing of establishing sales, marketing and distribution
capabilities;
|
|
|
•
|
the
effect of competing technological and market
developments;
|
|
|
•
|
the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property
rights; and
|
|
|
•
|
the
extent to which we acquire or invest in businesses, products and
technologies.
|
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 the 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 December
31, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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
We did
not sell any unregistered equity securities during the quarter ended December
31, 2010.
Item
3. Default Upon Senior Securities
We did
not default upon any senior securities during the quarter ended December 31,
2010.
Item
4. Removed and Reserved
Item
5. Other Information
On
January 28, 2011, we entered into an agreement with Tianjin Ascent Import and
Export Company, Ltd., a distributor in China, to sell certain of our products
into the People’s Republic of China. Pursuant to the agreement, the distributor
will pay a $350,000 non-refundable upfront payment by February 23, 2011, for
which they will be given exclusivity to sell these products for the first
contract year. In order to maintain exclusivity in subsequent years, the
distributor will need to meet minimum purchase requirements each contract year.
The initial term of the contract is for five years cancellable if certain
conditions are not met. Additionally, we will receive a prepayment of $180,000
which will be applied as payment to future product shipments.
|
Number
|
|
Description
|
|
|
|
|
|
3.1
|
|
Restated
Certificate of Incorporation of the Company (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).
|
|
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of the Company, as amended effective on June 11,
2008 (included as Exhibit 3.1(ii) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 2008, and incorporated
herein by reference).
|
|
|
|
|
|
3.3
|
|
Amended
and Restated Bylaws of the the Company as Amended, effective November 3,
2010 (included as Exhibit 3.3 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2010, and incorporated herein by
reference).
|
|
|
|
|
|
4.1
|
|
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).
|
|
|
|
|
|
4.2
|
|
Warrant
to Purchase Series A Preferred Stock of the Company by and between
the Company 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).
|
|
|
|
|
|
4.3
|
|
Warrant
to Purchase Series B Preferred Stock of the Company by and between
the Company 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).
|
|
|
|
|
|
4.4
|
|
Form
of Warrant to Purchase Common Stock of the Company (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).
|
|
|
|
|
|
4.5
|
|
Form
of Warrant to Purchase Common Stock of the Company (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).
|
|
|
|
|
|
4.6
|
|
Form
of Warrant to Purchase Common Stock of the Company (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).
|
|
|
|
|
|
Number
|
|
Description
|
| |
|
|
|
4.7
|
|
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).
|
|
|
|
|
|
4.8
|
|
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).
|
|
|
|
|
|
4.9
|
|
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).
|
|
|
|
|
|
4.10
|
|
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).
|
|
|
|
|
|
4.11
|
|
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)
|
|
|
|
|
|
4.12
|
|
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).
|
|
10.1
|
|
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).
|
|
|
|
|
|
10.2
|
|
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).
|
|
|
|
|
|
10.3
|
|
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).
|
|
|
|
|
|
10.4
|
|
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).
|
|
|
|
|
|
10.5
|
|
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).
|
|
|
|
|
|
10.6
|
|
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).
|
|
10.7
|
|
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).
|
|
|
|
|
|
10.8
|
|
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).
|
|
|
|
|
|
10.9
|
|
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).
|
|
|
|
|
|
10.10
|
|
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).
|
|
10.11
|
|
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).
|
|
|
|
|
|
Number
|
|
Description
|
| |
|
|
|
10.12
|
|
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).
|
|
|
|
|
|
10.13
|
|
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).
|
|
|
|
|
|
10.14
|
|
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).
|
|
|
|
|
|
10.15
|
|
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).
|
|
|
|
|
|
10.16
|
|
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).
|
|
10.17
|
|
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).
|
|
|
|
|
|
10.18
|
|
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).
|
|
|
|
|
|
10.19
|
|
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).
|
|
10.20
|
|
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).
|
|
|
|
|
|
10.21
|
|
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).
|
|
|
|
|
|
10.22
|
|
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).
|
|
|
|
|
|
10.23
|
|
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).
|
|
|
|
|
|
10.24
|
|
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).
|
|
|
|
|
|
10.25†
|
|
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).
|
|
|
|
|
|
Number
|
|
Description
|
| |
|
|
|
10.26
|
|
Securities
Purchase Agreement, dated August 7, 2007, by and between Registrant
and certain purchasers identified on the signatures pages thereto
(originally filed as Exhibit 10.1 to the Company’s Current Report on Form
8-K filed August 13, 2007, and refiled as Exhibit 10.26 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 to
add signature pages of investors).
|
|
|
|
|
|
10.27
|
|
Registration
Rights Agreement, dated August 7, 2007, by and between Registrant and
certain purchasers identified on signatures pages thereto (originally
filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
August 13, 2007, and refiled as Exhibit 10.27 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2010 to add
signature pages of investors).
|
|
10.28
|
|
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).
|
|
|
|
|
|
10.29
|
|
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).
|
|
|
|
|
|
10.30
|
|
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).
|
|
|
|
|
|
10.31
|
|
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).
|
|
|
|
|
|
10.32
|
|
Purchase
Agreement by and between Registrant and certain accredited investors,
dated February 6, 2009 (originally filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed February 9, 2009, and
refiled as Exhibit 10.32 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2010 to add investor lists and
signature pages of investors).
|
|
|
|
|
|
10.33
|
|
Purchase
Agreement by and between Registrant, Robert Burlingame and Seamus
Burlingame, dated February 24, 2009 (incuded as Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed February 27, 2009 and
incorporated herein by reference).
|
|
10.34
|
|
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).
|
|
|
|
|
|
10.35
|
|
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).
|
|
|
|
|
|
10.36
|
|
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).
|
|
|
|
|
|
10.37
|
|
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).
|
|
|
|
|
|
10.38
|
|
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).
|
|
|
|
|
|
10.39
|
|
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).
|
|
|
|
|
|
10.40
|
|
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).
|
|
|
|
|
|
10.41
|
|
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).
|
|
|
|
|
|
Number
|
|
Description
|
| |
|
|
|
10.42
|
|
Loan
and Security Agreement, dated May 1, 2010 between the
Company 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).
|
|
|
|
|
|
10.43
|
|
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).
|
|
|
|
|
|
10.44††
|
|
Amendment
No. 2 to Revenue Sharing, Partnership and Distribution Agreement between
the Registrant and Vetericyn, Inc., dated July 24, 2009 (included as
Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010, and incorporated herein by
reference).
|
|
|
|
|
|
10.45††
|
|
Amendment
No. 3 to Revenue Sharing, Partnership and Distribution Agreement between
the Registrant and Vetericyn, Inc. dated June 1, 2010 (Included as Exhibit
10.34 to the Company’s Quarterly Report on Form 10-Q filed on August 5,
2010 and incorporated herein by reference).
|
|
|
|
|
|
10.46††
|
|
Amendment
No. 1 to Exhibit A to the Revenue Sharing Distribution Agreement and to
the Revenue Sharing, Partnership and Distribution Agreement as Revised and
Amended, June 1, 2010, dated September 1, 2010 (included as Exhibit 10.46
to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2010, and incorporated herein by
reference).
|
| |
|
|
|
10.47*††
|
|
Distribution
Agreement between the Company and Tianjin Ascent Import and Export
Company, Ltd dated January 28, 2011. |
|
|
|
|
|
21.1*
|
|
List
of Subsidiaries
|
|
|
|
|
|
31.1*
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
31.2*
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
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.
|
|
†
|
Confidential
treatment has been granted with respect to certain portions of this
agreement.
|
|
††
|
Confidential
treatment has been requested with respect to certain portions of this
agreement.
|
|
#
|
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.
|
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.
|
|
Oculus
Innovative Sciences, Inc.
|
|
|
|
|
|
Date:
February 4, 2010
|
By:
|
/s/
Hojabr Alimi
|
|
|
|
Hojabr
Alimi
|
|
|
Its:
|
Chairman
of the Board of Directors and Chief
|
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
|
|
|
Date: February
4, 2010
|
By:
|
/s/
Robert Miller
|
|
|
|
Robert
Miller
|
|
|
Its:
|
Chief
Financial Officer
|
|
|
|
(Principal
Financial Officer)
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
|