Section 382 Rights Agreement

On October 18, 2016, the Company’s board of directors approved, and entered into, a Section 382 rights agreement, or the Rights Agreement, with Computershare Inc., or the Rights Agent. The Rights Agreement provides for a dividend of one preferred stock purchase right, or a Right, for each share of common stock, par value $0.0001 per share, of the Company outstanding on November 1, 2016, or the Record Date. Each Right entitles the holder to purchase from us one one-thousandth of a share of Series B Preferred Stock, par value $0.0001 per share, or the Preferred Stock, for a purchase price of $10.00, subject to adjustment as provided in the Rights Agreement. The description and terms of the Rights are set forth in the Rights Agreement.

In connection with the adoption of the Rights Agreement, the Company’s board of directors adopted a Certificate of Designation of Series B Preferred Stock. The Certificate of Designation was filed with the Secretary of State of the State of Delaware and became effective on October 18, 2016.

The Company’s board of directors adopted the Rights Agreement to protect shareholder value by guarding against a potential limitation on its ability to use its net operating loss carryforwards, or NOLs, and other tax benefits, which may be used to reduce potential future income tax obligations. The Company experienced and continues to experience substantial operating losses, and under the Internal Revenue Code of 1986, as amended, and rules promulgated thereunder, it may “carry forward” these NOLs and other tax benefits in certain circumstances to offset any current and future earnings and thus reduce its income tax liability, subject to certain requirements and restrictions. To the extent that the NOLs and other tax benefits do not otherwise become limited, the Company believes that it will be able to carry forward a significant amount of NOLs and other tax benefits, and therefore these NOLs and other tax benefits could be a substantial asset to the Company. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Code, its ability to use its NOLs and other tax benefits will be substantially limited. Generally, an ownership change would occur if shareholders who own, or are deemed to own, 5% or more of the Company’s common stock increase their collective ownership in the Company by more than 50% over a rolling three-year period.

Asset Purchase Agreement

On October 27, 2016, the Company, along with its Mexican subsidiary and manufacturer Oculus Technologies of Mexico, S.A. de C.V., closed on an asset purchase agreement with Invekra, S.A.P.I de C.V., an affiliate of Laboratorios Sanfer S.A. de C.V., for the sale of certain of its Latin America assets. Specifically, the Company agreed to sell certain patents, patent applications, trademarks, and manufacturing equipment for Mexico, the Caribbean and South America, excluding the sale of dermatology products in Brazil.

The aggregate purchase price that Invekra will pay for the assets is $22,000,000, with $18,000,000 paid in cash upon closing, $1,500,000 held in escrow until completion of its obligations to deliver certain equipment and technology, and $2,500,000 to be paid in Mexican currency in quarterly installments over a period of ten years from closing as consideration for the provision of certain services and providing technical assistance, calculated as three per cent on net sales of certain products in Latin America, excluding Mexico. Because the $2,500,000 is to be paid in foreign currency, we may receive more or less than $2,500,000 due to currency fluctuations.

In connection with the asset purchase agreement, the Company and Invekra entered into several ancillary agreements.

The Company will continue to supply its Microcyn® products pursuant to the Company’s partner agreements to Laboratorios Sanfer and its animal health partner Grimann S.A. de C.V. for a transition period, at a reduced price from its current price list, while Invekra builds its own manufacturing line.  At the conclusion of the transition period, the Company will cease to be a supplier of product to Laboratorios Sanfer and Grimann S.A. de C.V.  The Company is uncertain as to the duration of the transition period or when Inverka will complete the build of its manufacturing line.  Pursuant to the agreement the Company is subject to a potential penalty for failure to supply the products for a consecutive period of six months. The penalty, if triggered, will require the Company to make a one-time payment of $2,000,000 to Invekra. The penalty is set to decrease by 12.5% each quarter of the term of the supply period, which is two years.

Additionally, the Company will incur additional cost to fulfill its obligations to deliver certain equipment and technology.  The cost to build the equipment is currently under review and cannot be accurately estimated at this time.

Share Issuance

On November 4, 2016, the Company issued 6,411 shares of common stock valued at $3.90 per share to a service provider for services provided to the Company.