Attached files

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EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - ULURU Inc.ex_23-1.htm
EX-21.1 - SUBSIDIARIES OF ULURU INC. - ULURU Inc.ex_21-1.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - ULURU Inc.ex_32-2.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - ULURU Inc.ex_32-1.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 AND 15D-14 - ULURU Inc.ex_31-1.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO RULE 13A-14 AND 15D-14 - ULURU Inc.ex_31-2.htm

 



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2009
 
Commission File No. 000-49670

ULURU Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
41-2118656
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
4452 Beltway Drive
   
Addison, Texas
 
75001
(Address of principal executive offices)
 
(Zip Code)

(214) 905-5145
(Registrant’s telephone number, including area code)

-----------------------------

Securities registered under Section 12(b) of the Exchange Act:

Title of Class
 
Name of exchange on which registered
Common Stock, $0.001 par value
 
New York Stock Exchange Amex LLC
-----------------------------

Securities registered under Section 12(g) of the Exchange Act:

None
-----------------------------

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant t Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark 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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of June 30, 2009 (the last business day of the most recently completed second fiscal quarter), the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant (without admitting that any person whose shares are not included in the calculation is an affiliate) was approximately $8,899,146 based on the closing price of the registrant’s common stock as reported on the New York Stock Exchange Amex LLC (formerly known as the American Stock Exchange) on such date.

As of March 24, 2010, there were 81,946,657 shares of the registrant’s Common Stock, $0.001 par value per share, issued and outstanding.


 
 

 


 
 
 
FORM 10-K
 
FOR THE YEAR ENDED DECEMBER 31, 2009
 
 
 
TABLE OF CONTENTS
 
Item
 
Page
 
     
     
 
     
     
 
     
     
 
     
 






FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY

This Annual Report on Form 10-K (including documents incorporated by reference) and other written and oral statements the Company makes from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact that they use words such as “should”, “expect”, “anticipate”, “estimate”, “target”, “may”, “project”, “guidance”, “intend”, “plan”, “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.  Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company’s goals, plans and projections regarding its financial position, statements indicating that the Company has cash and cash equivalents sufficient to fund our operations through the third quarter of 2011, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, acquisitions, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years. The Company has included important factors in the cautionary statements included in this 2009 Annual Report on Form 10-K, particularly under “Risk Factors”, that the Company believes could cause actual results to differ materially from any forward-looking statement.
 
Although the Company believes it has been prudent in its plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.



Organizational History

ULURU Inc. (hereinafter “we”, “our”, “us”, or the “Company”), was incorporated on September 17, 1987 under the laws of the State of Nevada, originally under the name Casinos of the World, Inc.  From April 1993 to January 2002, the Company changed its name on four separate occasions, with Oxford Ventures, Inc. being the Company’s name on January 30, 2002.

Our charter was suspended (subject to reinstatement) by the State of Nevada in September 2001 for inactivity and failure to pay annual fees and costs. Its active status was reinstated on January 30, 2002, upon payment of all past due fees and costs.

On December 2, 2003, we issued 8,625,000 shares pursuant to an Asset Purchase Agreement.  On December 5, 2003, we declared a 2.25 stock dividend which increased the issued and outstanding shares from 10,528,276 common shares to 34,216,897 common shares.

On March 1, 2004, we affected a 4 to 1 forward split, increasing our outstanding shares to 136,867,588.

On October 12, 2005, we entered into a merger agreement with ULURU Inc., a Delaware corporation ("ULURU Delaware"), and Uluru Acquisition Corp., a wholly-owned Delaware subsidiary of ours formed on September 29, 2005. Under the terms of the agreement, Uluru Acquisition Corp. merged into ULURU Delaware, after ULURU Delaware had acquired the net assets of the topical component of Access Pharmaceuticals, Inc., under Section 368 (a) (1) (A) of the Internal Revenue Code.

As a result of the merger, we acquired all of the issued and outstanding shares of ULURU Delaware under a stock exchange transaction, and ULURU Delaware became a wholly-owned subsidiary of the Company, its legal parent. However, for financial accounting and reporting purposes, ULURU Delaware is treated as the acquirer and is consolidated with its legal parent, similar to the accounting treatment given in a recapitalization. For accounting presentation purposes only, our net assets are treated as being acquired by ULURU Delaware at fair value as of the date of the stock exchange transaction, and the financial reporting thereafter has not been, and will not be, that of a development stage enterprise, since ULURU Delaware had substantial earned revenues from planned operations.  Both companies have a December 31 fiscal year end.

On March 29, 2006, we filed a Certificate of Amendment to the Articles of Incorporation in Nevada.  This Certificate of Amendment authorized a 400:1 reverse stock split  so that in exchange for every 400 outstanding shares of common stock that each shareholder had at the close of business on March 29, 2006, the shareholder would receive one share of common stock.  As a result of this reverse stock split, our issued and outstanding common stock was reduced from 340,396,081 pre-split shares of common stock to 851,094 post-split shares which include additional shares for fractional interests.  The Certificate of Amendment also authorized a decrease in authorized shares of common stock from 400,000,000 shares, par value $.001 each, to 200,000,000, par value $.001 each, and authorized up to 20,000 shares of Preferred Stock, par value $.001.

On March 31, 2006, we filed a Certificate of Amendment to the Articles of Incorporation in Nevada to change our name from "Oxford Ventures, Inc." to "ULURU Inc."  On the same date, we moved our executive offices to Addison, Texas.

On March 31, 2006, we acquired, through our wholly-owned subsidiary (Uluru Acquisition Corp.) a 100% ownership interest in ULURU Delaware through a merger of ULURU Delaware into Uluru Acquisition Corp.  We acquired ULURU Delaware in exchange for 11,000,000 shares of our common stock. As a result of this merger, the former shareholders of ULURU Delaware owned an aggregate of 92.8% of the issued and outstanding shares of our common stock and the pre-merger shareholders of ours owned an aggregate of 7.2% of the issued and outstanding shares of our common stock.

At the effective time of such merger, the members of the ULURU Delaware Board of Directors holding office immediately prior to such merger became our directors, and all persons holding offices of ULURU Delaware at the effective time continued to hold the same offices of the surviving corporation.  Simultaneously, ULURU Inc.'s directors and officers immediately prior to the closing of such merger resigned from all of their respective positions with us.

On May 31, 2006, ULURU Delaware filed a Certificate of Amendment to its Certificate of Incorporation in Delaware to change its name from "Uluru Inc." to "ULURU Delaware Inc."




Company Mission and Strategy

We are a diversified specialty pharmaceutical company committed to developing and commercializing a broad range of innovative wound care and muco-adhesive film products based on our patented NanoflexTM and OraDiscTM drug delivery technologies, with the goal of improving outcomes for patients, health care professionals, and health care payers.

Our strategy is threefold:

§
Establish the foundation for a market leadership position in wound management by developing and commercializing a customer focused portfolio of innovative wound care products based on the NanoflexTM technology to treat the various phases of wound healing;
§
Develop our oral-transmucosal technology (OraDiscTM) and generate revenues through multiple licensing agreements; and
§
Develop our NanoflexTM technology for the medical aesthetics market and enter into one or more strategic partnerships to bring these products to market.

Core Technology Platforms

Our two core drug delivery technologies were originally purchased from Access Pharmaceuticals, Inc. in October 2005.  The acquisition provided for the assumption of all assets of the topical drug delivery business including inventories, capital equipment and intellectual property specifically identified with the purchased technologies.

NanoflexTM Technology

NanoflexTM technology provides unique materials with a broad range of properties and potential applications. While a conventional bulk hydrogel is an "infinite" network of loosely cross-linked hydrophilic polymers that swells when placed in polar solvents, we have discovered that a variety of unique biomaterials can be formed through the aggregation of hydrogel-like nanoparticles. This concept takes advantage of the inherent biocompatibility of hydrogels while overcoming problems with local stress and strain, which cause bulk hydrogels to shear. Unlike bulk hydrogels, these particle aggregates are shape retentive, can be extruded or molded, and offer properties suitable for use in a variety of in-vivo medical devices, and in novel drug delivery systems, by providing tailored regions of drug incorporation and release. The polymers used in our NanoflexTM technology have been extensively researched by the academic and scientific community and commercialized into several major medical products. They are generally accepted as safe, non-toxic and biocompatible.

Our NanoflexTM technology system has at its core a system of hydrogel-like nanoparticles composed of a polymer used in manufacturing contact lenses and other FDA-approved implants.  These nanoparticles aggregate immediately and irreversibly upon contact with physiological fluid, such as wound exudate or blood, forming a flexible, nonresorbable material termed an aggregate.

Utilizing our proprietary Nanoflex™ technology, we have developed three separate development platforms from the system:

§
NanoflexTM Powder
§
NanoflexTM Gel
§
NanoflexTM Injectable Liquid

Each of the systems is composed of nanoparticles which are stabilized to prevent aggregation prior to application to a physiological environment.  We can control the particle size and chemical composition to affect the rate of aggregation, the final material properties such as fluid content and strength of the resulting aggregate, and if desired, the drug delivery profile for actives trapped in the aggregate.



NanoflexTM Powder

Our NanoflexTM Powder is composed of hydrogel particle flakes that aggregate immediately and irreversibly upon contact with physiological fluid such as wound exudate, forming a flexible and nonresorbable film.  The film can be used to cover and protect a wound surface and can also be applied to provide specific drug delivery profiles to a wound or skin surface.

The powder is applied as a dry material and immediately hydrates and forms a uniform, intact film with adhesion to the moist wound.  In addition, we have formulated the powder with active pharmaceutical ingredients to provide specific release profiles to wound surfaces.  A major advantage of our nanoparticle aggregate technology is the ability to incorporate active drugs, and provide controlled release.  Drug molecules can be trapped within interstitial spaces between particles during aggregate formation. The spaces between particles, or nanopores in the lattice, can be tailored by varying the particle size which controls the diffusion rate.  Particle size directly affects the size of the holes and channels in the aggregate lattice, which slow down or speed up the movement of a compound as it is released.  By choosing specific particle sizes and compositions and formulating these with a given active, the drug delivery profile can be tailored for a specific application.

We have developed and are developing a range of products utilizing our NanoflexTM powder in wound care:

§
Powder dressings for the coverage and protection of acute and chronic wounds without an active ingredient;
§
Silver containing dressings with antimicrobial properties; and
§
Collagen containing dressings for management of chronic wounds.

Many other actives can be combined with the base technology, which could lead to significant improvements versus the present standard of care, such as:

§
Hemostatic agent containing dressings for acute trauma with blood loss;
§
Antibiotic containing dressings for treatment of infection; and
§
Growth factor containing dressings for management of slow healing chronic wounds.


NanoflexTM Gel

Our NanoflexTM technology is composed of hydrated nanoparticles that are concentrated into a viscoelastic gel.  The gel fills the shape of a container or envelope and the physical properties such as firmness or elasticity can be varied by changing the particle composition and concentrations.  If the gel is exposed to physiological fluid such as in a body cavity, the particles will aggregate immediately and irreversibly forming a flexible, nonresorbable aggregate.  This technology is currently being developed as an advanced wound filler material suitable for filling tunneling wounds, such as pressure sores.



NanoflexTM Injectable Liquid

Our family of dermal fillers and facial sculpting products has three major components that form the injectable materials:

§
Hyaluronic acid
§
NanoflexTM particles
§
Water

Hyaluronic acid is a nonspecies-specific hydrophilic coiled polysaccharide that is present in all connective tissue.  In dermal and sub-dermal tissue, hyaluronic acid binds with water and provides volume and elasticity.  As a dermal filler, hyaluronic acid provides superb biocompatibility, but applications of this material can be limiting because the material is resorbed in a four to twelve month period requiring repeat injections.  Our dermal filler and sub-dermal filler can be composed of between 1 and 3% hyaluronic acid with several choices of molecular weight.  Materials for facial sculpting containing a lower amount of hyaluronic acid result in a higher degree of permanence.

A suspension of hydrogel nanoparticles containing a small percentage of hyaluronic acid, when injected into tissue, immediately and irreversibly aggregates. With time, the hyaluronic acid portion of the aggregate resorbs, leaving behind a porous, NanoflexTM framework which provides the basis for cellular infiltration and acts as the anchor for collagen attachment.  The resulting non-migrating porous scaffold is projected to have a longevity time significantly greater than currently available commercial products.

This injectable system has been studied extensively for safety and for applications as a dermal filler to provide a family of soft tissue filler materials with different degrees of permanency.


Mucoadhesive OraDiscTM Technology

Treatment of oral conditions generally relies upon the use of medications formulated as gels and pastes, which are applied to lesions in the mouth. The duration of effectiveness of these medications is typically short because the applied dose is worn away through the mechanical actions of speaking, eating, and tongue movement, and is washed away by saliva flow. To address these problems, we developed a novel erodible mucoadhesive film product. This technology, known as OraDisc™, comprises a multi-layered film having an adhesive layer, a pre-formed film layer, and a coated backing layer. Depending upon the intended application, a pharmaceutically active compound can be formulated within any of these layers, providing a wide range of potential applications. The disc stays in place eroding over a period of time, so that subsequent removal is unnecessary. The drug delivery rate is pre-determined by the rate of erosion of the disc, which is in turn controlled by the composition of the backing layer.

Our adhesive film technology has multiple applications, including the localized delivery of drug to a mucosal site, use as a transmucosal delivery device for delivering drugs into the systemic circulation, and incorporating the drug in the outer layer for delivery into the oral cavity. The adhesive film will adhere to any wet mucosal surface, including the vagina, where this technology represents an opportunity to improve the delivery of drugs for female healthcare applications. Additionally, the adhesive film has been formulated to adhere to the surface of teeth and gums for the delivery of dental health and cosmetic dental actives.

OraDisc™ was initially developed as a drug delivery system to treat canker sores with the same active ingredient (amlexanox) that is used in our Aphthasol® paste. We have continued to develop the OraDisc™ technology and we have generated or are exploring additional prototype drug delivery products, including those for pain palliation in the oral cavity, gingivitis, cough and cold treatment, breath freshener, tooth whitening and other dental applications.



Marketed Products

We have used our drug delivery technology platforms to develop the following products and product candidates:

AltrazealTM

AltrazealTM Transforming Powder Dressing, based on our NanoflexTM technology, has the potential to change the way health care providers approach their treatment of wounds. Launched in June 2008, the product is indicated for exuding wounds such as partial thickness burns, donor sites, abrasions, surgical, acute and chronic wounds. The powder fills and seals the wound to provide an optimal moist healing environment. The exudate is controlled through the high moisture vapor transpiration rate (MVTR) that creates a low pressure environment which holds the dressing in place. Other characteristics promoting healing are oxygen permeability and bacteria impermeability.  Patient comfort is enhanced with the easy application and removal of our wound dressing, where no granulating tissue is harmed during the removal procedure.  The dressing is flexible and adherent and is designed to allow greater range of motion. In addition, AltrazealTM typically does not require a secondary dressing and reduces the need for frequent dressing changes, which offers a significant pharmaco-economic benefit.

In 2008 AltrazealTM was successfully scaled up through our network of strategic contract manufacturers. We established a commercial organization including Sales and Marketing management and 10 Product Specialists.  The regulatory status of AltrazealTM is a 510(k) exempt product. The FDA was notified and the product was registered in June 2008.  The product launch was in June 2008.

Since the roll-out of Altrazeal™ in June 2008, there have been many outstanding clinical results; positive clinical experiences have been documented through the completion of one randomized clinical trial, the publishing of more than 35 poster presentations, and one peer reviewed article being published in an international indexed journal.  AltrazealTM has contributed to improved healing and patient quality of life, in particular, a statistically significant reduction in pain.  In a randomized clinical study conducted in 2009, Altrazeal™ provided a significant improvement in pain and comfort over a market-leading wound dressing.

The time to achieve the commercial success of Altrazeal™ has taken longer than we anticipated. The consequences of the long selling cycle of Altrazeal™ led us to significantly restructure our organization in July 2009.  In order to effectively market AltrazealTM we believe that greater sales and marketing resources are needed.  As such, we have been seeking a strategic partner which will allow us to maximize the revenue potential of AltrazealTM.  In the interim, we are executing a parallel sales strategy that involves the hiring throughout the country of experienced wound care Independent Sales Representatives (“ISR’s”) that are compensated on a commission-only basis.



Aphthasol® and Aptheal® (Amlexanox 5% Paste)

Amlexanox 5% paste is the first drug approved by the FDA for the treatment of canker sores. A Phase IV clinical study conducted in Northern Ireland was completed in November 2000 and results confirmed that amlexanox 5% paste was effective in preventing the formation of an ulcer when used at the first sign or symptom of the disease.

The exclusive United States rights for the sale and marketing of amlexanox 5% paste for the treatment of canker sores is licensed to Discus Dental Inc., a specialty dental company.

The exclusive United Kingdom and Ireland rights for the sale and marketing of amlexanox 5% paste were initially licensed to ProStrakan. Under the terms of this license, ProStrakan was responsible for and assumed all costs associated with the regulatory approval process, including product registration, for amlexanox in the United Kingdom and the European Union.
 
In November 2008, Meda AB expanded their territorial rights to include the United Kingdom, Ireland, France, Germany, Italy, Belgium, Netherland, Turkey, which were in addition to their existing territories of Scandinavia, the Baltic States, and Iceland. In addition to our license agreement with Meda AB, licensing agreements have been executed with Laboratories Esteve for Spain, Portugal and Greece; Pharmascience Inc. for Canada; EpiTan, Ltd. for Australia and New Zealand; and Orient Europharma, Co., Ltd for Taiwan, Hong-Kong, Philippines, Thailand and Singapore; and KunWha Pharmaceutical Co., LTD for South Korea. Currently, Contract Pharmaceuticals Ltd. Canada is our contract manufacturer for all markets including the United States.

ProStrakan received marketing authorization for amlexanox 5% paste in the United Kingdom in September 2001under the trade name of Aptheal®. Approval to market was granted in Austria, Germany, Greece, Finland, Ireland, Luxembourg, The Netherlands, Norway, Portugal, and Sweden in conjunction with Meda AB.  Meda AB intends to apply for regulatory approvals in countries where registration has not been received including France, Italy and Belgium.

The therapeutic Products Programme, the Canadian equivalent of the FDA, has issued a notice of compliance permitting the sale of amlexanox 5% paste, called Apthera®, in Canada by Pharmascience Inc., our Canadian partner.

OraDisc™ A

Treatment of oral conditions generally relies upon the use of medications formulated as gels and pastes that are applied to lesions in the mouth. The duration of effectiveness of these medications is typically short because the applied dose is worn away through the mechanical actions of speaking, eating, and tongue movement, and is washed away by saliva flow. To address these problems, we have developed a novel, cost-effective, adhesive film product that is bioerodible. This technology, known as OraDisc™, comprises a multi-layered film having an adhesive layer, an optional pre-formed film layer, and a coated backing layer.

OraDisc™ A was initially developed as a drug delivery system to treat canker sores with the same active ingredient (amlexanox) that is used in Aphthasol® paste. We anticipate that higher amlexanox concentrations will be achieved at the disease site, increasing the effectiveness of the product.  OraDisc™ A was approved by the FDA in September 2004.

This successful development was an important technology milestone which supports the development of our OraDisc™ range of products. To achieve OraDisc™ A approval, in addition to performing the necessary clinical studies to prove efficacy, an irritation study, a 28-day safety study and drug distribution studies were conducted. Additionally, safety in patients as young as 12 years of age was demonstrated. Patients in a 700 patient clinical study and 28-day safety study completed a survey which produced very positive results with regard to perceived effectiveness, ease of application, ability of the disc to remain in place and purchase intent. These data give strong support to our overall development program. The survey data confirms market research studies which indicate a strong patient acceptance of this delivery device.

In order to expedite the commercialization of OraDisc™ A we reacquired the rights in 2008 and are aggressively pursuing another strategic partner. In the meantime, Discus Dental is continuing to market Aphthasol® in the United States.
 
In November 2008, we executed an expanded European Agreement with Meda AB, Sweden for OraDisc™ A and Aphthasol (5% amlexanox) paste for distribution into most major European markets. Meda AB paid us an upfront licensing fee and additional milestone payments will be made upon regulatory approval and achievements of commercial milestones.

In June 2008, we executed a Licensing and Supply Agreement with KunWha Pharmaceutical Co., Ltd, for OraDisc A and Aphthasol (5% amlexanox) paste in South Korea.  KunWha Pharmaceutical Co., Ltd paid us an upfront licensing fee and further milestone payments are to be made on regulatory approval and achievement of certain commercial milestones.
 



OraDiscTM B

A second mucoadhesive disc product has also been successfully developed for the treatment and management of oral pain. This product contains 15 milligrams of benzocaine which is the maximum allowable strength that falls under the classification of an OTC monograph drug. This classification allows for an easier regulatory pathway to market. The product has been optimized and is ready for commercial scale-up.

In March 2007, we executed a Licensing and Supply Agreement for OraDisc™ B with Meldex International, for the territories of Europe and the Middle East. We received an upfront licensing fee and will receive additional payments based on regulatory approval and commercial milestones.

Residerm® A gel - Zindaclin® (Zinc-Clindamycin)

The complexing of zinc to a drug has the effect of enhancing the penetration of the drug into the skin and the retention to the drug in the skin. This phenomenon is called the "reservoir effect," and it makes zinc potentially effective for the delivery of dermatological drugs. We have a broad patent covering the use of zinc for such purposes. This technology is called ResiDerm®.

We have developed, in conjunction with ProStrakan, zinc clindamycin for the treatment of acne which is marketed under the trade name Zindaclin®. Topical acne drugs constitute an approximately $750 million per year market and clindamycin is a widely prescribed drug for the treatment of acne. Clinical studies indicate that the addition of zinc results in Zindaclin® being as effective applied once daily as the market leading clindamycin product applied twice daily. The activity of zinc and clindamycin, the improved stability of the product and the potential for zinc to overcome certain bacterial resistance are other potential product benefits.

Pursuant to a license agreement, the exclusive worldwide rights for the manufacturing, sales and marketing of zinc clindamycin were granted to ProStrakan.  Under the terms of the license agreement, ProStrakan agreed to fund the development costs of zinc clindamycin and any additional compounds developed utilizing our zinc patent, including preclinical, clinical development, and product registrations. We share equally in all milestone payments received from the sublicensing of the compound. In addition, we receive a royalty on sales of products utilizing this technology.

ProStrakan sub-licensed to Crawford Healthcare Limited the marketing of zinc clindamycin in the United Kingdom which is sold under the trade name Zindaclin®.  Subsequently, in December 2006, ProStrakan signed a Licensing Agreement to extend Crawford Healthcare Limited’s territory to include all EU countries except Spain and Italy, the United States, and the CEE countries.  The process to achieve marketing authorization for Zindaclin® throughout Europe has now been completed, with approvals granted in most European Union countries including the new member states and several non-European Union countries.  In Spain and Italy, Zindaclin® is licensed to Cantabria SA.  Additional licenses and/or distribution agreements have been signed in other countries with other companies.



Patents

We believe that the value of technology both to us and to our potential corporate partners is established and enhanced by our broad intellectual property positions. Consequently, we have already been issued and seek to obtain additional U.S. and foreign patents for products under development and for new discoveries. Patent applications are filed for our inventions and prospective products with the U.S. Patent and Trademark Office and, when appropriate, with authorities in countries that are part of the Paris Convention’s Patent Cooperation Treaty (“PCT”) (most major countries in Western Europe and the Far East) and with other authorities in major markets not covered by the PCT.

One U.S. and two European patents have been issued and one European patent application is pending for the use of zinc as a pharmaceutical vehicle for enhancing the penetration and retention of drug in the skin. The patents and patent application cover the method of inducing a reservoir effect in skin and mucous membranes to enhance penetration and retention of topically applied therapeutic and cosmetic agents. The patents and patent application also relate to topical treatment methods including such reservoir effect enhancers and to pharmaceutical compositions containing them.

We have one U.S. patent and have filed one U.S. and two PCT patent applications for our OraDisc™ technology. This oral delivery vehicle potentially overcomes the difficulties encountered in using conventional paste and gel formulations for conditions in the mouth. Utilizing this technology, we anticipate that higher drug concentrations will be achieved at the disease site, increasing the effectiveness of the product.  Our patent applications cover the delivery of drugs through or into any mucosal surface and onto the surface of gums and teeth. The patent and patent applications cover our ability to control the erosion time of the adhesive film and the subsequent drug release by adjusting the ratio of hydrophobic to hydrophilic polymers in the outer layer of the composite film.

With regards to our NanoflexTM technology, one U.S. patent has issued and three additional U.S. and four PCT patent applications have been filed. The patent applications have a variety of potential applications, such as wound management, burn care, dermal fillers, breast implants, artificial discs and tissue scaffold.  In December 2006 we acquired from Access Pharmaceuticals Inc. all patent rights and all intellectual properties associated with the NanoflexTM technology.  We then licensed to Access certain specific applications of the Nanoparticle Aggregate technology which include use in intraperotinial, intratumoral, subscutaneous or intramuscular drug delivery implants, excluding aesthetic dermal or facial fillers.

We also have a patent for amlexanox and the worldwide rights, excluding Japan, for the use of amlexanox for oral and dermatological applications.

We have a strategy of developing an ongoing line of patent continuation applications for both the Nanoflex™ and OraDisc™ technologies. By this approach, we are extending the intellectual property protection of our basic technologies to cover additional related inventions, some of which are anticipated to carry the priority dates of the original applications.



 
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Government Regulation

We are subject to extensive regulation by the federal government, principally by the United States Food and Drug Administration (“FDA”), and, to a lesser extent, by other federal and state agencies as well as comparable agencies in foreign countries where registration of products will be pursued. Although a number of our formulations incorporate extensively tested drug substances, because the resulting formulations make claims of enhanced efficacy and/or improved side effect profiles, they are expected to be classified as new drugs by the FDA.

The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statues and regulations govern the testing, manufacturing, safety, labeling, storage, shipping, and record keeping of our products. The FDA has the authority to approve or not approve new drug applications and/or new medical devices and inspect research, clinical and manufacturing records and facilities.

In Europe, the filing of a Technical File Dossier to a Notified Body allows the medical device to receive a CE mark which allows commercialization of the product in the European Union.

Among the requirements for drug and medical device approval and testing is that the prospective manufacturer’s facilities and methods conform to the Code of Good Manufacturing Practices (“cGMP”) regulations, which establish the manufacturing and quality requirements, and the facilities or controls to be used during, the production process. Such facilities and manufacturing process are subject to ongoing FDA inspection to insure compliance.

The steps required before a pharmaceutical product or medical device product may be produced and marketed in the U.S. can include preclinical tests, the filing of an Investigational New Drug application (“IND”) or an Investigational Device Exemption (“IDE”) with the FDA, which must become effective pursuant to FDA regulations before human clinical trials may commence.  Numerous phases of clinical testing and the FDA approval of a New Drug Application (“NDA”), a Product Marketing Authorization (“PMA”), or a 510(k) application (“510(k)”) is also typically required prior to commercial sale.

Preclinical tests are conducted in the laboratory, usually involving animals, to evaluate the safety and efficacy of the potential product. The results of preclinical tests are submitted as part of the IND and IDE application and are fully reviewed by the FDA prior to granting the sponsor permission to commence clinical trials in humans. All trials are conducted under International Conference on Harmonization, good clinical practice guidelines. All investigator sites and sponsor facilities are subject to FDA inspection to insure compliance. Clinical trials typically involve a three-phase process.  In the case of a pharmaceutical product, Phase I, the initial clinical evaluations, consists of administering the drug and testing for safety and tolerated dosages. Phase II involves a study to evaluate the effectiveness of the drug for a particular indication and to determine optimal dosage and dose interval and to identify possible adverse side effects and risks in a larger patient group. When a product is found safe, an initial efficacy is established in Phase II and it is then evaluated in Phase III clinical trials. Phase III trials consist of expanded multi-location testing for efficacy and safety to evaluate the overall benefit to risk index of the investigational drug in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to the FDA in the form of an NDA, PMA, or 510(k) for approval to commence commercial sales.

The process of performing the requisite testing, data collection, analysis and compilation of an IND, IDE, NDA, PMA, or 510(k) is labor intensive and costly and may take a protracted time period.  In some cases, tests may have to be redone or new tests instituted to comply with FDA requests.  Review by the FDA may also take considerable time and there is no guarantee that an NDA, PMA, or 510(k) will be approved.  Therefore, we cannot estimate with any certainty the length of the approval cycle.

We are also governed by other federal, state and local laws of general applicability, such as laws regulating working conditions, employment practices, as well as environmental protection.


 
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Competition

The medical device and pharmaceutical industry is characterized by intense competition, rapid product development and technological change.  Competition is intense among manufacturers of prescription pharmaceuticals, medical devices, and other product areas where we may develop and market products in the future.  Most of our potential competitors in the wound care market such as ConvaTec Inc., Systagenix Wound Management, Smith & Nephew - are large, well established medical device, pharmaceutical or healthcare companies with considerably greater financial, marketing, sales and technical resources than are available to us. Additionally, many of our potential competitors have research and development capabilities that may allow such competitors to develop new or improved products that may compete with our product lines.  Our potential products could be rendered obsolete or made uneconomical by the development of new products to treat the conditions to be addressed by our developments, technological advances affecting the cost of production, or marketing or pricing actions by one or more of our potential competitors.  Our business, financial condition and results of operation could be materially adversely affected by any one or more of such developments.  We cannot assure you that we will be able to compete successfully against current or future competitors or that competition will not have a materially adverse effect on our business, financial condition and results of operations.  Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or with the assistance of major health care companies in areas where we are developing product candidates.  We are aware of certain developmental projects for products to treat or prevent certain disease targeted by us.  The existence of these potential products or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of products developed by us.

In the area of wound management, burn care, breast implants, and dermal fillers, which are the focus of our development activities, a number of companies are developing or evaluating new technology approaches.  We expect that technological developments will occur at a rapid rate and that competition is likely to intensify as various alternative technologies achieve similar, if not identical, advantages.

Wound care products developed from our Nanoflex™ technology, including Altrazeal™, will compete with numerous well established products including Aquacel® marketed by ConvaTec Inc., Silvercel and Promongran marketed by Systagenix Wound Management, Acticoat and Allevyn marketed by Smith and Nephew, and Mepitel and Mepliex marketing by Molnlycke Health Care.  There are numerous well established companies that compete in the advanced wound care market including ConvaTec Inc., Systagenix Wound Management, Smith & Nephew, Molnlycke Health Care, 3M,and Healthpoint, Ltd.

Our product, Aphthasol®, is the only product clinically proven to accelerate the healing of canker sores.  There are numerous products, including prescription steroids such as Kenalog in OraBase, and many over-the-counter pain relief formulations that incorporate a local anesthetic used for the treatment of this condition.

Products developed from our Residerm® technology will compete for a share of the existing market with numerous products which have become standard treatments recommended or prescribed by dermatologists. Zindaclin®, which is a product developed utilizing our Residerm® technology, competes with products including Benzamycin, marketed by a subsidiary of Sanofi-Aventis; Cleocin-T and a generic topical clindamycin marketed by Pfizer; Benzac, marketed by a subsidiary of L’Oreal; and Triaz, marketed by Medicis Pharmaceutical Corp.
 
Even if our products are fully developed and receive the required regulatory approval, of which there can be no assurance, we believe that our products that require extensive sales efforts directed both at the consumer and the general practitioner can only compete successfully if marketed by a company having expertise and a strong presence in the therapeutic area or in direct to consumer marketing. Consequently, our business model is to form strategic alliances with major or regional pharmaceutical companies for products to compete in these markets.  Management believes that our development risks should be minimized and that the technology potentially could be more rapidly developed and successfully introduced into the marketplace by adopting this strategy.
 

 
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Employees

As of December 31, 2009, we had 7 full-time employees, including 1 in sales and marketing, 2 in research and development (each with advanced scientific degrees), 2 in general and administration and 1 in manufacturing, quality, and service.  In addition, we use four contract consultants for business development, quality control and quality assurance, clinical administration, and regulatory administration.  Our employees are not represented by a labor union and are not covered by a collective bargaining agreement.  Management believes that we maintain good relations with our personnel.  At times, we may compliment our internal expertise with external scientific consultants, university research laboratories and contract manufacturing organizations that specialize in various aspects of drug development including clinical development, regulatory affairs, toxicology, preclinical testing and process scale-up.


Executive Officers and Key Employees

The following table sets forth the executive officers and key employees of the Company, as of the date hereof, along with their respective ages and positions.  Each of the officers listed below has been appointed to hold the office listed opposite his respective name until the earlier to occur of the death or resignation of such officer or until a successor has been duly appointed by the board of directors of the Company.

Name
Age
Position
  Renaat Van den Hooff
51
  Chief Executive Officer, President
  Terrance K. Wallberg
55
  Vice President, Chief Financial Officer, Secretary, Treasurer
  Daniel G. Moro
63
  Vice President Polymer Drug Delivery
  John V. St. John, Ph.D.
38
  Vice President Research and Development
  Christopher J. Stergion
44
  Director of Sales and Marketing

The following is a brief account of the business experience during the past five years of each executive officer and key employee of the Company, including principal occupations and employment during that period and the name and principal business of any corporation or other organization in which such occupation and employment were carried on.

Renaat Van den Hooff led the integration of the Johnson and Johnson (“J&J”) and Pfizer Consumer Healthcare business for the Europe, Middle East and Africa region.  Previously, from 2004 to 2006 Mr. Van den Hooff was President of J&J Merck Consumer Pharmaceuticals and President of McNeil International, having been President of J&J Merck from 2003 and Vice President for the U.S. Joint Venture from 2001 to 2003.  Prior to that from 1997 to 2001, Mr. Van den Hooff had been Managing Director United Kingdom and Ireland for J&J MSD Consumer Pharmaceuticals.  From 1989 to 1996 Mr. Van den Hooff held various positions at Janssen Pharmaceutica Belgium.  Prior to joining the J&J family of companies, from 1983 to 1988 he held various positions with IMS Belgium.

 
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Terrance K. Wallberg, a Certified Public Accountant, possesses an extensive and diverse background with over 30 years of experience with entrepreneurial/start-up companies. Prior to joining ULURU Inc., Mr. Wallberg was Chief Financial Officer with Alliance Hospitality Management and previous to that was CFO for DCB Investments, Inc., a Dallas, Texas based diversified real estate holding company. During his five year tenure at DCB Investments, Mr. Wallberg acquired valuable experience with several successful start-up businesses and dealing with the external financial community. Prior to DCB Investments, Mr. Wallberg spent 22 years with Metro Hotels, Inc., serving in several finance/accounting capacities and culminating his tenure as Chief Financial Officer. Mr. Wallberg is a member of the American Society and the Texas Society of Certified Public Accountants and is a graduate of the University of Arkansas, Little Rock.

Daniel G. Moro was previously Vice President, Polymer Drug Delivery at Access Pharmaceuticals, Inc. from September 2000 until October 2005. He managed various drug delivery projects related to Hydrogel polymers. He invented the mucoadhesive erodible drug delivery technology (OraDisc™) for the controlled administration of actives and is the co-inventor of our hydrogel nanoparticle aggregate technology.  Previously, Mr. Moro served as Vice President, Operations for a Division of National Patent Development Corporation (“NPDC”) which developed the soft contact lens. Prior to his operational experience, Mr. Moro spent 20 years at the NPDC as a senior research scientist and invented and commercialized several technologies, including a hydrogel burn and wound dressing and a subcutaneous retrievable drug delivery implant to treat prostate cancer. Mr. Moro has over twenty five years experience of pharmaceutical development and holds nine patents related to drug delivery applications, four of which have been commercialized.

Dr. John V. St. John was previously a Senior Scientist at Access Pharmaceuticals, Inc. from March 2000 until October 2005. He served as team leader during the early identification of Access Pharmaceuticals’ oncology drug, AP5346. Dr. St. John served as team leader for the hydrogel team from January 2002 to October 2005 during the development of the Hydrogel Nanoparticle Aggregate Technology and is the co-inventor of this technology.  He holds one patent. Dr. St. John has served as an adjunct faculty member in the Department of Biomedical Engineering at the University of Texas Southwestern Medical School while at Access Pharmaceuticals. Previously, Dr. St. John served as a Dreyfus Fellow and Assistant Professor in the Department of Chemistry of Southern Methodist University from August 1998 to March 2000. He has earned a graduate certificate in Marketing from the SMU Cox School of Business. Dr. St. John served as the elected Chair of the Dallas Fort Worth American Chemical Society Section for 2005 and is a current member in the American Professional Woundcare Association, American Chemical Society, the Materials Research Society, and the Controlled Release Society.

Christopher J. Stergion has a sales and marketing leadership background including over 16 years of experience in the Chronic Wound Care industry.  Prior to joining ULURU Inc., Mr. Stergion served in various progressing levels of responsibility at Johnson & Johnson.  From 2007 to 2008, Mr. Stergion was Product Director for Johnson & Johnson Wound Management’s Regranex Gel and Promogran Matrix brands.  From 2005 to 2006, Mr. Stergion was the Sales Operations Director for Ethicon, Inc. managing sales compensation, sales analytics and sales reporting.  From 2000 to 2004, Mr. Stergion led several sales teams as a Division Manager in Johnson & Johnson Wound Management’s Advance Wound Care business.  Mr. Stergion led the sales Training Department for Johnson & Johnson Medical’s Advanced Wound Care business from 1998 to 1999.  Mr. Stergion began his Johnson & Johnson career in sales as a Wound Management Representative and Account Manager from 1993 to 1997.  Prior to joining the Johnson & Johnson family of companies, Mr. Stergion was a Sales Manager and Sales Representative at Orthopedic Technology, Inc. from 1989 to 1992.  Mr. Stergion is a graduate of the University of California, Santa Barbara.

 
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You should carefully consider the following risk factors before you decide to invest in our Company and our business because these risk factors may have a significant impact on our business, operating results, financial condition, and cash flows. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected.


Risks Related to Our Operations

We do not have significant operating revenue and we may never attain profitability.

Our ability to achieve significant revenue or profitability depends upon our ability to successfully complete the development of product candidates, to develop and obtain patent protection and regulatory approvals for our product candidates and to manufacture and commercialize the resulting products.  We may not generate significant revenues or profits from the sale of these products in the future.  Furthermore, we may not be able to ever successfully identify, develop, commercialize, patent, manufacture, obtain required regulatory approvals and market any additional products.  Moreover, even if we do identify, develop, commercialize, patent, manufacture, and obtain required regulatory approvals to market additional products, we may not generate revenues or royalties from commercial sales of these products for a significant number of years, if at all.  Therefore, our proposed operations are subject to all the risks inherent in the establishment of a new business enterprise. In the next few years, our revenues may be limited to minimal product sales and royalties, amounts that we receive under strategic partnerships and research or product development collaborations that we may establish and, as a result, we may be unable to achieve or maintain profitability in the future or to achieve significant revenues to fund our operations.

Declining general economic or business conditions may have a negative impact on our business.

Concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global economy and expectations of slower global economic growth going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated a global economic slowdown. If the economic climate in the U.S. does not improve or continues to deteriorate, our business, including our patient population, our suppliers and our third-party payers, could be negatively affected, resulting in a negative impact on our business.

A failure to obtain necessary additional capital in the future could jeopardize our operations.

We may not be able to obtain additional financing on terms acceptable to us, if at all. If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors would be diluted and the new investors could obtain terms more favorable than previous investors.  A failure to obtain additional funding to support our working capital and operating requirements could prevent us from making expenditures that are needed to allow us to maintain our operations.

Our financial condition may limit our ability to borrow additional funds or to raise additional equity as may be required to fund our future operations.

Our ability to borrow funds or raise additional equity may be limited by our financial condition.  Additionally, events such as our inability to continue to reduce our loss from continuing operations, could adversely affect our liquidity and our ability to attract additional funding as required.

 
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Our cash and cash equivalents may not be sufficient to fund our operations beyond the third quarter of 2011.

Assuming our current costs of operations remain relatively unchanged over the next several months, our present cash and cash equivalents may not be sufficient to fund our operations beyond the third quarter of 2011.  Unless we are able to raise additional funds from our financing efforts prior to such time, we may not be able to support our operations and may be forced to cease operations and dissolve the Company.  Although the Company believes it has been prudent in this assessment of the rate at which its cash and cash equivalents may be expended, no assurance can be given that such assessment will prove accurate and readers are therefore cautioned not to place undue reliance thereon.
 
Although we expect that any future acquisitions we may complete will result in benefits to the combined company, we may not realize such benefits because of integration and other challenges.
 
We may pursue strategic acquisitions as part of our efforts to grow our business.  Although we expect that the consummation of any such acquisitions will result in benefits to the combined company, we may not realize such benefits because of integration and other challenges.  Any such acquisition could also be expensive and could require us to use our limited cash resources.
 
Our ability to realize the anticipated benefits of any acquisition will depend, in part, on the ability of the Company to integrate the business of the acquired company with our business. The combination of two independent companies is a complex, costly and time-consuming process. This process may disrupt the business of either or both of the companies, and may not result in the full benefits expected by the parties. The difficulties of combining the operations of the companies include, among others:
 
§ 
unanticipated issues in integrating information, communications and other systems;
§ 
retaining key employees;
§ 
consolidating corporate and administrative infrastructures;
§ 
the diversion of management’s attention from ongoing business concerns; and
§ 
coordinating geographically separate organizations.

The success of our research and development activities, upon which we primarily focus, is uncertain.

Our primary focus is on our research and development activities and the commercialization of products covered by proprietary biopharmaceutical patents and applications.  Research and development activities, by their nature, preclude definitive statements as to the time required and costs involved in reaching certain objectives.  Actual research and development costs, therefore, could exceed budgeted amounts and estimated time frames may require extension.  Cost overruns, unanticipated regulatory delays or demands, unexpected adverse side effects or insufficient therapeutic efficacy will prevent or substantially slow our research and development effort and our business could ultimately suffer.

We may not successfully commercialize our product candidates.

Our product candidates are subject to the risks of failure inherent in the development of pharmaceuticals based on new technologies and our failure to develop safe, commercially viable products would severely limit our ability to become profitable or to achieve significant revenues.  We may be unable to successfully commercialize our product candidates because:

§ 
some or all of our product candidates may be found to be unsafe or ineffective or otherwise fail to meet applicable regulatory standards or receive necessary regulatory clearances;
§ 
our product candidates, if safe and effective, may be too difficult to develop into commercially viable products;
§ 
it may be difficult to manufacture or market our product candidates in a large scale;
§ 
proprietary rights of third parties may preclude us from marketing our product candidates; and
§ 
third parties may market superior or equivalent products.


 
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If we are unable to establish and maintain effective sales, marketing and distribution capabilities, or to enter into agreements with third parties to do so, we will be unable to successfully commercialize Altrazeal™.

We are marketing and selling Altrazeal™ through a network of independent sales representatives (“ISR’s”) in the United States but have only limited experience thus far with marketing, sales or distribution of wound care products. We have engaged ISR’s for the commercialization of Altrazeal™ in the United States. If we are unable to establish the capabilities to sell, market and distribute Altrazeal™, either through our existing ISR capabilities or by entering into agreements with others, or to maintain such capabilities in countries where we have already commenced commercial sales, we will not be able to successfully sell Altrazeal™. In that event, we will not be able to generate significant revenues. We cannot guarantee that we will be able to establish and maintain our ISR capabilities or enter into and maintain any marketing or distribution agreements with third-party providers on acceptable terms, if at all. Even if we hire ISR’s or qualified sales and marketing personnel we need in the United States to support our objectives, or enter into marketing and distribution agreements with third parties on acceptable terms, we may not do so in an efficient manner or on a timely basis. We may not be able to correctly judge the size and experience of the sales and marketing force and the scale of distribution capabilities necessary to successfully market and sell Altrazeal™. Establishing and maintaining sales, marketing and distribution capabilities are expensive and time-consuming. Our expenses associated with building up and maintaining the sales force and distribution capabilities may be disproportional compared to the revenues we may be able to generate on sales of Altrazeal™. We cannot guarantee that we will be successful in commercializing Altrazeal™.

We may be unable to successfully develop, market, or commercialize our products or our product candidates without establishing new relationships and maintaining current relationships.

Our strategy for the research, development and commercialization of our potential pharmaceutical products may require us to enter into various arrangements with corporate and academic collaborators, licensors, licensees and others, in addition to our existing relationships with other parties.  Specifically, we may need to joint venture, sublicense or enter other marketing arrangements with parties that have an established marketing capability or we may choose to pursue the commercialization of such products.  Furthermore, if we maintain and establish arrangements or relationships with third parties, our business may depend upon the successful performance by these third parties of their responsibilities under those arrangements and relationships.  For our commercialized products, we currently rely upon the following relationships in the following marketing territories for sales, manufacturing and/or regulatory approval efforts:

Amlexanox 5% paste and OraDisc™ A
  Discus Dental Inc.
§ 
United States;
  Meda AB
§ 
United Kingdom, Ireland, Scandinavia, the Baltic states, Iceland, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Switzerland, Austria, Bulgaria, Cyprus, Czech Republic, Hungary, Malta, Poland, Romania, Slovenia, Turkey, Russia, and the Commonwealth of Independent States
  EpiTan Pharmaceuticals
§ 
Australia and New Zealand;
  Kunwha Pharmaceutical
§ 
South Korea;
  Laboratories del Dr. Esteve SA
§ 
Spain, Portugal, Greece, and Andorra;
  Orient Europharma, Co., Ltd.
§ 
Taiwan, Hong-Kong, Malaysia, Philippines, Thailand and Singapore;
  Pharmascience Inc.
§ 
Canada;

OraDisc™ B
  Meldex International PLC
§ 
Europe, CEE and CIS countries, and the Middle East

Zindaclin® and Residerm®
  ProStrakan Ltd.
§ 
worldwide manufacturing, marketing and regulatory approval rights;
  Crawford
§ 
sublicensed United Kingdom, Ireland, continental Europe, and CEE countries marketing rights;
  Cantabria
§ 
sublicensed Italy and Spain marketing rights;
  EpiTan, Ltd.
§ 
sublicensed Australia and New Zealand marketing rights;
  Hyundai
§ 
sublicensed Korea marketing rights;
  Taro
§ 
sublicensed Israel marketing rights;
  Biosintetica
§ 
sublicensed Brazil marketing rights;
  Five companies for nine other smaller countries with sublicensed marketing rights.

Our ability to successfully commercialize, and market our products and product candidates could be limited if a number of these existing relationships were terminated.

 
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We may be unable to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes without the assistance of contract manufacturers, which may be difficult for us to obtain and maintain.

We have limited experience in the manufacture of pharmaceutical products in clinical quantities or for commercial purposes, and we may not be able to manufacture any new pharmaceutical products that we may develop.  As a result, we have established, and in the future intend to establish, arrangements with contract manufacturers to supply sufficient quantities of products to conduct clinical trials and for the manufacture, packaging, labeling, and distribution of finished pharmaceutical products.  If we are unable to contract for a sufficient supply of our pharmaceutical products on acceptable terms, our preclinical and human clinical testing schedule may be delayed, resulting in the delay of our clinical programs and submission of product candidates for regulatory approval, which could cause our business to suffer.  Our business could suffer if there are delays or difficulties in establishing relationships with manufacturers to produce, package, label and distribute our finished pharmaceutical or other medical products, if any, and the market introduction and subsequent sales of such products.  Moreover, contract manufacturers that we may use must adhere to current Good Manufacturing Practices, as required by FDA.  In this regard, the FDA will not issue a pre-market approval or product and establishment licenses, where applicable, to a manufacturing facility for the products until the manufacturing facility passes a pre-approval plant inspection.  If we are unable to obtain or retain third party manufacturing on commercially acceptable terms, we may not be able to commercialize our products as planned.  Our potential dependence upon third parties for the manufacture of our products may adversely affect our ability to generate profits or acceptable profit margins and our ability to develop and deliver such products on a timely and competitive basis.

We may incur substantial product liability expenses due to the use or misuse of our products for which we may be unable to obtain insurance coverage.

Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. These risks will expand with respect to our drug candidates, if any, that receive regulatory approval for commercial sale, and we may face substantial liability for damages in the event of adverse side effects or product defects identified with any of our products that are used in clinical tests or marketed to the public. We generally procure product liability insurance for product candidates that are undergoing human clinical trials. Product liability insurance for the biotechnology industry is generally expensive, if available at all, and as a result, we may be unable to obtain insurance coverage at acceptable costs or in sufficient amount in the future, if at all.

We may be unable to satisfy any claims for which we may be held liable as a result of the use or misuse of products which we have developed, manufactured or sold and any such product liability could adversely affect our business, operating results or financial condition.

 
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We may incur significant liabilities if we fail to comply with stringent environmental regulations.

Our research and development processes involve the controlled use of hazardous materials.  We are subject to a variety of federal, state and local governmental laws and regulations related to the use, manufacture, storage, handling, and disposal of such material and certain waste products.  Although we believe that our activities and our safety procedures for storing, using, handling and disposing of such material comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated.  In the event of such accident, we could be held liable for any damages that result and any such liability could exceed our resources.

Additional federal, state, foreign and local laws and regulations affecting our operations may be adopted in the future, including laws related to climate change.  We may incur substantial costs to comply with these laws or regulations.  Additionally, we may incur substantial fines or penalties if we violate any of these laws or regulations.

Intense competition may limit our ability to successfully develop and market commercial products.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our competitors in the United States and elsewhere are numerous and include, among others, major multinational pharmaceutical, device, and chemical companies, specialized biotechnology firms and universities and other research institutions.

The following products may compete with Residerm® products:

§
Benzamycin, marketed by a subsidiary of Sanofi-Aventis;
§
Cleocin-T and a generic topical clindamycin, marketed by Pfizer;
§
Benzac, marketed by Galderma; and
§
Triaz, marketed by Medicis Pharmaceutical Corp.

Prescription steroids such as Kenalog in OraBase, developed by Bristol-Myers Squibb, may compete with our commercialized Aphthasol® product. OTC products including Orajel (Church and Dwight) and Anbesol (Wyeth Consumer Healthcare) also compete in the aphthous ulcer market.

In the area of wound management and burn care, which is the primary focus of our commercialization and development activities, a number of companies are developing or evaluating new technology approaches.  Significantly larger companies compete in this marketplace including Kinetic Concepts, Inc., Convatec, Systagenics, Smith and Nephew, 3M, and numerous other companies.  We expect that technological developments will occur at a rapid rate and that competition is likely to intensify as various alternative technologies achieve similar if not identical advantages.

Many of these competitors have and employ greater financial and other resources, including larger research and development, marketing and manufacturing organizations.  As a result, our competitors may successfully develop technologies and drugs that are more effective or less costly than any that we are developing or which would render our technology and future products obsolete and noncompetitive.

In addition, some of our competitors have greater experience than we do in conducting preclinical and clinical trials and may obtain FDA and other regulatory approvals for product candidates more rapidly than we do.  Companies that complete clinical trials obtain required regulatory agency approvals and commence commercial sale of their products before their competitors may achieve a significant competitive advantage.  Products resulting from our research and development efforts or from our joint efforts with collaborative partners therefore may not be commercially competitive with our competitors’ existing products or products under development.

 
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Our ability to successfully develop and commercialize our drug or device candidates will substantially depend upon the availability of reimbursement funds for the costs of the resulting drugs or devices and related treatments.

The successful commercialization of, and the interest of potential collaborative partners to invest in the development of our drug or device candidates, may depend substantially upon the reimbursement at acceptable levels of the costs of the resulting drugs or devices and related treatments from government authorities, private health insurers and other organizations, including health maintenance organizations, or HMOs.  To date, the costs of our marketed products Aphthasol® and Zindaclin® generally have been reimbursed at acceptable levels; however, the amount of such reimbursement in the United States or elsewhere may be decreased in the future or may be unavailable for any drugs or devices that we may develop in the future.  Limited reimbursement for the cost of any drugs or devices that we develop may reduce the demand for, or price of such drugs or devices, which would hamper our ability to obtain collaborative partners to commercialize our drugs or devices, or to obtain a sufficient financial return on our own manufacture and commercialization of any future drugs or devices.

The market may not accept any pharmaceutical products that we successfully develop.

The drugs and devices that we are attempting to develop may compete with a number of well-established drugs and devices manufactured and marketed by major pharmaceutical companies.  The degree of market acceptance of any drugs or devices developed by us will depend on a number of factors, including the establishment and demonstration of the clinical efficacy and safety of our drug candidates, the potential advantage of our drug candidates over existing therapies and the reimbursement policies of government and third-party payers.  Physicians, patients or the medical community in general may not accept or use any drugs or devices that we may develop independently or with our collaborative partners and if they do not, our business could suffer.

Trends toward managed health care and downward price pressure on medical products and services may limit our ability to profitably sell any drugs or devices that we develop.

Lower prices for pharmaceutical products may result from:

§ 
Third-party payers’ increasing challenges to the prices charged for medical products and services;
   
§ 
The trend toward managed health care in the Unites States and the concurrent growth of HMOs and similar organizations that can control or significantly influence the purchase of healthcare services and products; and
   
§ 
Legislative proposals to reform healthcare or reduce government insurance programs.

The cost containment measures that healthcare providers are instituting, including practice protocols and guidelines and clinical pathways, and the effect of any healthcare reform, could limit our ability to profitably sell any drugs or devices that we may successfully develop.  Moreover, any future legislation or regulation, if any, relating to the healthcare industry or third-party coverage and reimbursement, may cause our business to suffer.

 
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Our business could suffer if we lose the services of, or fail to attract, key personnel.

We are highly dependent upon the efforts of our senior management and scientific team.  The loss of the services of one or more of these individuals could delay or prevent the achievement of our research, development, marketing, or product commercialization objectives.  While we have employment agreements with our senior management, their employment may be terminated at any time.  We do not maintain any "key-man" insurance policies on any of our senior management and we do not intend to obtain such insurance.  In addition, due to the specialized scientific nature of or business, we are highly dependent upon our ability to attract and retain qualified scientific and technical personnel.  In view of the stage of our development and our research and development programs, we have restricted our hiring to a small sales team, research scientists and a small administrative staff and we have made only limited investments in manufacturing, production or regulatory compliance resources.  There is intense competition among major pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions for qualified personnel in the areas of our activities, however, and we may be unsuccessful in attracting and retaining these personnel.

Our future financial results could be adversely impacted by asset impairments or other charges.

Accounting Standards Codification (“ASC”) Topic 350-30, Intangibles Other than Goodwill requires that we test goodwill and other intangible assets determined to have indefinite lives for impairment on an annual, or on an interim basis if certain events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value or if the fair value of intangible assets with indefinite lives falls below their carrying value. In addition, under ASC Topic 350-30, long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable. A significant decrease in the fair value of a long-lived asset, an adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition or an expectation that a long-lived asset will be sold or disposed of significantly before the end of its previously estimated life are among several of the factors that could result in an impairment charge.
 
We evaluate intangible assets determined to have indefinite lives for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sales or disposition of a significant portion of the business, or other factors such as a decline in our market value below our book value for an extended period of time.
 
We evaluate the estimated lives of all intangible assets on an annual basis, to determine if events and circumstances continue to support an indefinite useful life or the remaining useful life, as applicable, or if a revision in the remaining period of amortization is required. The amount of any such annual or interim impairment charge could be significant, and could have a material adverse effect on reported financial results for the period in which the charge is taken.

 
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Failure to achieve and maintain effective internal controls could have a material adverse effect on our business.

Effective internal controls are necessary for us to provide reliable financial reports.  If we cannot provide reliable financial reports, our operating results could be harmed.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial preparation and presentation.

While we continue to evaluate and improve our internal controls, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.  Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time; we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.  Failure to achieve and maintain an effective internal control environment could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.

Risks Related to Development, Clinical Testing and Regulatory Approval

We are subject to extensive governmental regulation which increases our cost of doing business and may affect our ability to commercialize any new products that we may develop.

The FDA and comparable agencies in foreign countries impose substantial requirements upon the introduction of pharmaceutical products through lengthy and detailed laboratory, preclinical and clinical testing procedures and other costly and time-consuming procedures to establish their safety and efficacy. Some of our products and product candidates require receipt and maintenance of governmental approvals for commercialization. Preclinical and clinical trials and manufacturing of our product candidates will be subject to the rigorous testing and approval processes of the FDA and corresponding foreign regulatory authorities. Satisfaction of these requirements typically takes a significant number of years and can vary substantially based upon the type, complexity and novelty of the product. The status of our principal products is as follows:

§ 
Altrazeal™ is a product approved for sale in the U.S.;
   
§ 
Other Altrazeal™ products are currently in clinical and development phases;
   
§ 
Nanoparticle aggregate product candidates are in the preclinical and clinical phase;
   
§ 
5% amlexanox paste is a product approved for sale in the U.S. (Aphthasol®); approved in the UK, Canada, and ten EU countries but not yet sold;
   
§ 
OraDisc™ A is a product approved for sale in the U.S. as of September 2004; we are completing steps for manufacturing and sale of the product in 2011;
   
§ 
Our other OraDisc™ products are currently in the development phase; and
   
§ 
Zindaclin® is a product approved for sale in the United Kingdom, Ireland, and extensively throughout European Union countries.


 
- 22 -



Due to the time consuming and uncertain nature of the drug and device candidate development process and the governmental approval process described above, we cannot assure you when we, independently or with our collaborative partners, might submit a New Drug Application (“NDA”), or a 510(k), for FDA or other regulatory review.

Government regulation also affects the manufacturing and marketing of pharmaceutical and medical device products. Government regulations may delay marketing of our potential drugs or potential medical devices for a considerable or indefinite period of time, impose costly procedural requirements upon our activities and furnish a competitive advantage to larger companies or companies more experienced in regulatory affairs. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our ability to generate significant revenues from commercial sales. Our drug or device candidates may not receive FDA or other regulatory approvals on a timely basis or at all. Moreover, if regulatory approval of a drug or device candidate is granted, such approval may impose limitations on the indicated use for which such drug or device may be marketed. Even if we obtain initial regulatory approvals for our drug or device candidates, our drugs or devices and our manufacturing facilities would be subject to continual review and periodic inspection, and later discovery of previously unknown problems with a drug, or device, manufacturer or facility may result in restrictions on the marketing or manufacture of such drug or device, including withdrawal of the drug or device from the market. The FDA and other regulatory authorities stringently apply regulatory standards and failure to comply with regulatory standards can, among other things, result in fines, denial or withdrawal of regulatory approvals, product recalls or seizures, operating restrictions and criminal prosecution.

The uncertainty associated with preclinical and clinical testing may affect our ability to successfully commercialize new products.

Before we can obtain regulatory approvals for the commercial sale of our potential products, the product candidates may be subject to extensive preclinical and clinical trials to demonstrate their safety and efficacy in humans. In this regard, for example, adverse side effects can occur during the clinical testing of a new drug on humans which may delay ultimate FDA approval or even lead us to terminate our efforts to develop the product for commercial use. Companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after demonstrating promising results in earlier trials. The failure to adequately demonstrate the safety and efficacy of a product candidate under development could delay or prevent regulatory approval of the product candidate. A delay or failure to receive regulatory approval for any of our product candidates could prevent us from successfully commercializing such candidates and we could incur substantial additional expenses in our attempts to further develop such candidates and obtain future regulatory approval.

 
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Risks Related to Our Intellectual Property

We may not be successful in protecting our intellectual property and proprietary rights.

Our success depends, in part, on our ability to obtain U.S. and foreign patent protection for our drug and device candidates and processes, preserve our trade secrets and operate our business without infringing the proprietary rights of third parties.  Legal standards relating to the validity of patents covering pharmaceutical and biotechnology inventions and the scope of claims made under such patents are still developing and there is no consistent policy regarding the breadth of claims allowed in biotechnology patents.  The patent position of a biotechnology firm is highly uncertain and involves complex legal and factual questions.  We cannot assure you that any existing or future patents issued to, or licensed by, us will not subsequently be challenged, infringed upon, invalidated or circumvented by others.  As a result, although we, together with our subsidiaries, are the owner of U.S. patents and U.S. patent applications now pending, and European patents and European patent applications, we cannot assure you that any additional patents will issue from any of the patent applications owned by us.  Furthermore, any rights that we may have under issued patents may not provide us with significant protection against competitive products or otherwise be commercially viable.

Our patents for the following technologies expire in the years and during the date ranges indicated below:

§
Zindaclin® and Residerm® between 2010 and 2020
§
5% amlexanox paste in 2011
§
OraDisc™ in 2021
§
Hydrogel Nanoparticle Aggregate in 2022

In addition, patents may have been granted to third parties or may be granted covering products or processes that are necessary or useful to the development of our product candidates.  If our product candidates or processes are found to infringe upon the patents or otherwise impermissibly utilize the intellectual property of others, our development, manufacture and sale of such product candidates could be severely restricted or prohibited. In such event, we may be required to obtain licenses from third parties to utilize the patents or proprietary rights of others.  We cannot assure you that we will be able to obtain such licenses on acceptable terms, if at all.  If we become involved in litigation regarding our intellectual property rights or the intellectual property rights of others, the potential cost of such litigation, regardless of the strength of our legal position, and the potential damages that we could be required to pay could be substantial.

Risks Related to Our Common Stock

Provisions of our charter documents could discourage an acquisition of our company that would benefit our stockholders and may have the effect of entrenching, and making it difficult to remove, management.

Provisions of our Certificate of Incorporation and By-laws may make it more difficult for a third party to acquire control of our company, even if a change in control would benefit our stockholders.  In particular, shares of our preferred stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as our Board of Directors may determine, including for example, rights to convert into our common stock.  The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any of our preferred stock that may be issued in the future. The issuance of our preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire control of us.  This could limit the price that certain investors might be willing to pay in the future for shares of our common stock and discourage these investors from acquiring a majority of our common stock.

 
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Our stockholders may experience substantial dilution in the value of their investment if we issue additional shares of our capital stock.

Our charter allows us to issue up to 200,000,000 shares of our common stock and to issue and designate the rights of, without stockholder approval, up to 20,000 shares of preferred stock. In the event we issue additional shares of our capital stock, dilution to our stockholders could result. In addition, if we issue and designate a class of preferred stock, these securities may provide for rights, preferences or privileges senior to those of holders of our common stock.

Substantial sales of our common stock could lower our stock price.

The market price for our common stock could drop as a result of sales of a large number of our presently outstanding shares of common stock or shares that we may issue or be obligated to issue in the future.

We do not expect to pay dividends in the foreseeable future.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors.  Accordingly, you will have to rely on appreciation in the price of our common stock, if any, to earn a return on your investment in our common stock. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends.



None.



As of December 31, 2009, we did not own any real property.  We entered into a lease on April 1, 2006 for approximately 9,000 square feet of administrative offices and laboratories in Addison, Texas.  The lease agreement expires in April 2013.  Additional space is available in the complex for future expansion which we believe would accommodate growth for the foreseeable future.  The minimum monthly lease obligation of $9,228, which is inclusive of monthly operating expenses, continues for forty months as of December 31, 2009.

We believe that our existing leased facilities are suitable for the conduct of our business and adequate to meet our growth requirements.



The Company was served in April 2009 with a complaint in an action in the Supreme Court for New York County, State of New York.  The plaintiff, R.C.C. Ventures, LLC, alleges that it is due a fee for its performance in procuring or arranging a loan for the Company.  The Company denies all allegations of the complaint and any liability to the plaintiff and will vigorously defend against this claim.  The Company has also made a counterclaim against R.C.C. Ventures, LLC for breach of contract and is seeking monetary damages.


 
- 25 -




Our Annual Meeting of Stockholders was held on December 17, 2009.  At the Annual Meeting, the stockholders of the Company (i) elected each of the persons listed below to serve as a director of ULURU Inc. until the next annual meeting or until his successor is elected, (ii) approved an increase in the number of shares authorized for issuance under the Company’s 2006 Equity Incentive Plan, as amended, and (iii) ratified the selection of Lane Gorman Trubitt, L.L.P. as our independent auditors for the fiscal year ending December 31, 2009.

We had 66,099,419 shares of common stock outstanding and entitled to vote as of November 2, 2009, the record date for the Annual Meeting.  At the Annual Meeting, 41,311,565 shares of common stock were present in person or represented by proxy, constituting a majority of all of the outstanding shares of our common stock, for the three proposals indicated above.  The following sets forth detailed information regarding the results of the voting at the Annual Meeting:


Proposal 1.
Election of Directors.

 
Director
 
Votes in Favor
 
Votes Withheld
   
William W. Crouse
 
40,008,565
 
1,303,000
   
Jeffrey B. Davis
 
40,056,241
 
1,255,324
   
Kerry P. Gray
 
39,145,667
 
2,165,898


Proposal 2.
Approve an increase in the number of shares available for issuance under the Company’s 2006 Equity Incentive Plan from 6,000,000 to 9,000,000.

 
Votes in Favor:
 
18,996,399
   
 
Votes Against:
 
1,464,029
   
 
Abstentions:
 
47,483
   
 
Not Voted:
 
20,803,654
   


Proposal 3.
Ratification of the appointment of Lane Gorman Trubitt, L.L.P. as our independent auditors for the fiscal year ending December 31, 2009.

 
Votes in Favor:
 
39,910,028
   
 
Votes Against:
 
404,941
   
 
Abstentions:
 
996,596
   




 
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Market for Common Equity

Our common stock began trading on the NYSE Amex exchange (formerly the American Stock Exchange) under the symbol “ULU” on July 26, 2007. From March 31, 2006 to July 25, 2007 our common stock was quoted on the OTC Bulletin Board under the symbol “ULUR.OB”.

The following table sets forth, on a quarterly basis, the high and low per share closing prices of our common stock as reported on the NYSE Amex exchange (formerly the American Stock Exchange) from January 1, 2008 through December 31, 2009.

Year Ended December 31, 2009
 
High
   
Low
 
First Quarter
  $ 0.40     $ 0.13  
Second Quarter
  $ 0.29     $ 0.15  
Third Quarter
  $ 0.25     $ 0.10  
Fourth Quarter
  $ 0.24     $ 0.12  
                 
Year Ended December 31, 2008
               
First Quarter
  $ 2.88     $ 2.19  
Second Quarter
  $ 2.25     $ 0.81  
Third Quarter
  $ 1.95     $ 0.95  
Fourth Quarter
  $ 1.10     $ 0.26  

Holders of Common Stock

As of March 24, 2010, there were approximately 115 shareholders of record holding our common stock based upon the records of our transfer agent which do not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies.  On March 24, 2010, the closing price of our common stock was $0.19 and there were 81,946,657 shares of our common stock issued and outstanding.

Dividend Policy

To date, we have not declared or paid any cash dividends on our preferred stock or common stock and we do not anticipate paying any cash dividends on them in the foreseeable future.  The payment of dividends, if any, in the future is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, and financial condition and other relevant facts.  We currently intend to retain all future earnings, if any, to finance the development and growth of our business.

 
- 27 -



Securities Authorized for Issuance Under Equity Compensation Plans

We adopted our 2006 Equity Incentive Plan (“Incentive Plan”) on March 27, 2006 authorizing 2,000,000 shares under the Incentive Plan.  At the annual meeting of the stockholders held on May 8, 2007 and on December 17, 2009, our stockholders approved amendments to the Incentive Plan to increase the total number of shares of Common Stock issuable under the Incentive Plan pursuant to stock options and other equity awards by 4 million shares and 3 million shares, respectively.

As of December 31, 2009, we had granted options to purchase 4,210,000 shares of Common Stock since the inception of the Incentive Plan, of which 3,306,000 were outstanding at a weighted average exercise price of $2.34 per share and we had granted awards for 1,029,242 shares of restricted stock since the inception of the Incentive Plan, of which 405,882 were outstanding.  As of December 31, 2009, there were 4,643,180 shares that remained available for future grants under our Incentive Plan.

The following table sets forth the outstanding stock options or rights that have been authorized under equity compensation plans as of December 31, 2009.

Plan Category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
                 
2006 Equity Incentive Plan
    3,306,000     $ 2.34       4,643,180  
                         
Equity compensation plans not approved by security holders
    -0-       n/a       -0-  
                         
Total
    3,306,000     $ 2.34       4,643,180  



Not applicable.


 
- 28 -




The following discussion and other information in this Form 10-K contains forward-looking statements that are subject to significant risks and uncertainties. There are several important factors that could cause actual results to differ materially from historical results and percentages and results anticipated by the forward-looking statements. We have sought to identify the most significant risks to our business, but cannot predict whether or to what extent any of such risks may be realized nor can there be any assurance that we have identified all possible risks that might arise. Investors should carefully consider all of such risks before making an investment decision with respect to our stock.

The following contains certain statements that are forward-looking within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and that involve risks and uncertainties, including, but not limited to penetration rates, the uncertainties associated with research and development activities, clinical trials, the timing of and our ability to achieve regulatory approvals, dependence on others to market our licensed products, collaborations, future cash flow, the timing and receipt of licensing and milestone revenues, our ability to achieve licensing and milestone revenues, the future success of our marketed products and products in development, and other risks described below as well as those discussed elsewhere in this Form 10-K, documents incorporated by reference and other documents and reports that we file periodically with the Securities and Exchange Commission.

Business

ULURU Inc. (hereinafter “we”, “our”, “us”, “ULURU”, or the “Company”) is a Nevada corporation.  We are a diversified specialty pharmaceutical company committed to developing and commercializing a broad range of innovative wound care and muco-adhesive film products based on our patented NanoflexTM and OraDiscTM drug delivery technologies, with the goal of improving outcomes for patients, health care professionals, and health care payers.

Our strategy is threefold:

§
Establish the foundation for a market leadership position in wound management by developing and commercializing a customer focused portfolio of innovative wound care products based on the NanoflexTM technology to treat the various phases of wound healing;
§
Develop our oral-transmucosal technology (OraDiscTM) and generate revenues through multiple licensing agreements; and
§
Develop our NanoflexTM technology for the medical aesthetics market and enter into one or more strategic partnerships to bring these products to market.

Utilizing our technologies, four of our products have been approved for marketing in various global markets.  In addition, numerous additional products are under development utilizing our patented NanoflexTM and OraDiscTM drug delivery technologies.  Altrazeal™, the first product developed from our NanoflexTM technology, was launched in the United States in June 2008.


 
- 29 -



Recent Developments

On February 2, 2010, we entered into a Securities Purchase Agreement with several institutional investors whereby we agreed to sell and issue to those investors 5,000,000 shares of our common stock, par value $0.001 per share (the “February Offering”).  On February 5, 2010, we closed the February Offering and received aggregate net proceeds of approximately $900,000, after deducting placement fees and offering expenses payable by us.

Rodman & Renshaw, LLC, acting as our exclusive placement agent, received a placement fee of $70,000 (equal to 7% of the aggregate gross proceeds of the February Offering) as well as compensation warrants to purchase up to an aggregate of 250,000 shares (equal to 5% of the aggregate number of shares sold in the February Offering) of our common stock at an exercise price of $0.25 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Institutions Regulatory Authority.

We completed the offering and sale of the above shares in the February Offering pursuant to a shelf registration statement on Form S-3 (Registration No. 333-160568) declared effective by the Securities and Exchange Commission on July 23, 2009, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on February 4, 2010.

On December 3, 2009, the Company received notice from McKesson Medical-Surgical, Inc., one of the major pharmaceutical distributors in the United States, that it was approved as a distributor for the Company and had placed its first significant order for AltrazealTM.  McKesson Medical-Surgical delivers a comprehensive offering of medical-surgical supplies, medical equipment and health care technology-related services to the alternate site market, including physician offices, surgery centers, long-term care facilities, and home care throughout the United States.

On November 9, 2009, the Company entered into an engagement letter with Rodman & Renshaw, LLC (the “Placement Agent”), pursuant to which the Placement Agent agreed to act as exclusive placement agent on a reasonable best efforts basis for a proposed offering of our securities.

On November 11, 2009, we entered into a Securities Purchase Agreement with several institutional investors whereby we agreed to sell and issue to those investors the following securities (the “November Offering”):

§ 
10,714,467 shares of our common stock, par value $0.001 per share; and
§ 
Warrants to purchase up to 5,357,233 shares of our common stock (the “Warrants”);

The Warrants have an initial exercise price of $0.19 per share, and may be exercised at any time and from time to time on or after May 15, 2010 through and including May 15, 2015.

On November 16, 2009, we closed the November Offering and received aggregate net proceeds of approximately $1.26 million, after deducting placement fees and offering expenses payable by us (and excluding any proceeds from exercise of the Warrants).

Rodman & Renshaw, LLC, acting as our exclusive placement agent, received a placement fee of $105,002 (equal to 7% of the aggregate gross proceeds of the November Offering) as well as compensation warrants to purchase up to an aggregate of 535,723 shares (equal to 5% of the aggregate number of shares sold in the November Offering) of our common stock at an exercise price of $0.238 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Institutions Regulatory Authority.

We made the offering and sale of the above shares and warrants in the November Offering pursuant to a shelf registration statement on Form S-3 (Registration No. 333-160568) declared effective by the Securities and Exchange Commission on July 23, 2009, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on November 13, 2009.

Under this shelf registration process, we may from time to time sell common stock, preferred stock, debt securities or warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities, in one or more offerings up to a total dollar amount of $25,000,000.


 
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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through the private sales of convertible debentures and common stock.  Product sales, royalty payments, contract research, licensing fees and milestone payments from our corporate alliances have provided, and are expected in the future to provide partial funding for operations.  As of December 31, 2009 our cash and cash equivalents were $1,934,177 which is a decrease of $5,633,411 as compared to our cash and cash equivalents at December 31, 2008 of $7,567,588.  Our working capital (current assets less current liabilities) was $2,615,079 at December 31, 2009 as compared to our working capital at December 31, 2008 of $7,068,928.

Consolidated Cash Flow Data
   
Year Ended December 31,
 
Net Cash Provided by (Used in)
 
2009
   
2008
 
  Operating activities
  $ (6,888,084 )   $ (6,012,026 )
  Investing activities
    (7,027 )     (447,714 )
  Financing activities
    1,261,700       47,500  
  Net (Decrease) in cash and cash equivalents
  $ (5,633,411 )   $ (6,412,240 )

Operating Activities

For the year ended December 31, 2009, net cash used in operating activities was $6,888,084.  The principal component of net cash used for the year ended December 31, 2009 stems from our net loss of approximately $9,226,000.  This net loss for the year ended December 31, 2009 included substantial non-cash charges in the form of share-based compensation, amortization of patents, depreciation, and the intangible asset impairment loss.  These non-cash charges totaled approximately $3,599,000.

Additional uses of our net cash included a decrease of $824,000 in accounts payable due to timing of vendor payments, a decrease of $433,000 in accrued liabilities for employee benefits and incentives, the amortization of deferred revenues of $109,000, an increase of $23,000 in accounts receivable, and a decrease of $30,000 in our royalty advance for Aphthasol® due to sales by our distributor.  These uses of net cash were partially offset by a decrease of $85,000 in prepaid expenses due to expense amortization, and a decrease of $71,000 in inventory due to Altrazeal™ product sales.

For the year ended December 31, 2008, net cash used in operating activities was $6,012,026.  The principal component of net cash used for the year ended December 31, 2008 was our net loss of approximately $9,783,000, which included $2,245,000 of non-cash charges in the form of share-based compensation, amortization of patents, and depreciation.  Additional uses of our net cash related to an increase of approximately $761,000 in inventory of Altrazeal™ related products, an increase of $68,000 for renewal fees with the Food & Drug Administration, and a decrease of $90,000 in our royalty advance for Aphthasol® as a result of earned royalties from domestic sales by our Aphthasol® licensee.  These uses of net cash were partially offset by a decrease of $641,000 in accounts receivable due to customer collections, an increase of $652,000 in accounts payable due to costs for product manufacturing, an increase in accrued liabilities of $224,000 due to timing, and an increase in deferred revenues of $928,000 from the receipt of licensing payments associated with our OraDisc™ technologies.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2009 was $7,027.  The investing activities include approximately $1,018,000 in notes receivable associated with the loan to York Pharma in April 2009, the subsequent collection of the York loan in July 2009, and $14,000 associated with the purchase of Altrazeal™ manufacturing equipment.  The uses of net cash were partially offset by $7,000 of proceeds from the sale of laboratory equipment.

Net cash used in investing activities during the year ended December 31, 2008 was $447,714 and consisted primarily of manufacturing equipment purchases for our Altrazeal™ and OraDisc™ products.

 
- 31 -


Financing Activities

Net cash provided by financing activities during the year ended December 31, 2009 was $1,261,700 from the November Offering.

Net cash provided by financing activities during the year ended December 31, 2008 was $47,500 from the exercise of stock options to purchase 50,000 shares of our common stock.

Liquidity

In July 2009, the Company restructured its operations in efforts to reduce operating expenses, optimize operations and to conserve the necessary cash to further the Company’s revised business plan.  Currently, a core management group is being supplemented by a small selection of external consultants to support the Company’s primary business activities. Selling efforts for Altrazeal™ are continuing through a network of independent sales representatives throughout the country.

On November 11, 2009, we entered into a Securities Purchase Agreement with several institutional investors whereby we agreed to sell and issue to those investors the following securities:

§ 
10,714,467 shares of our common stock, par value $0.001 per share; and
§ 
Warrants to purchase up to 5,357,233 shares of our common stock (the “Warrants”);

The Warrants have an initial exercise price of $0.19 per share, and may be exercised at any time and from time to time on or after May 15, 2010 through and including May 15, 2015.

On November 16, 2009, we closed the November Offering and received aggregate net proceeds of approximately $1.26 million, after deducting placement fees and offering expenses payable by us (and excluding any proceeds from exercise of the Warrants).

Rodman & Renshaw, LLC, acting as our exclusive placement agent, received a placement fee of $105,002 (equal to 7% of the aggregate gross proceeds of the November Offering) as well as compensation warrants to purchase up to an aggregate of 535,723 shares (equal to 5% of the aggregate number of shares sold in the November Offering) of our common stock at an exercise price of $0.238 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Institutions Regulatory Authority.

On February 2, 2010, we entered into a Securities Purchase Agreement with several institutional investors whereby we agreed to sell and issue to those investors 5,000,000 shares of our common stock, par value $0.001 per share.  On February 5, 2010, we closed the February Offering and received aggregate net proceeds of approximately $900,000, after deducting placement fees and offering expenses payable by us.

Rodman & Renshaw, LLC, acting as our exclusive placement agent, received a placement fee of $70,000 (equal to 7% of the aggregate gross proceeds of the February Offering) as well as compensation warrants to purchase up to an aggregate of 250,000 shares (equal to 5% of the aggregate number of shares sold in the February Offering) of our common stock at an exercise price of $0.25 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Institutions Regulatory Authority.

The Company continues to seek a strategic relationship whereby the Company can more effectively maximize the revenue potential of Altrazeal™ as well as continuing, with the assistance of an investment bank, to explore future fund raising using the Company’s effective registration statement on Form S-3 or through the sale of assets.

 
- 32 -



Under the Form S-3 shelf registration process, we may from time to time sell common stock, preferred stock, debt securities or warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities, in one or more offerings up to a total dollar amount of $25,000,000.

As of March 1, 2010, we had cash and cash equivalents of approximately $2,337,000.  We expect to use our cash, cash equivalents, and investments on working capital and general corporate purposes, products, product rights, technologies, property and equipment, the payment of contractual obligations, and regulatory or sales milestones that may become due.  Our long-term liquidity will depend to a great extent on our ability to fully commercialize our Altrazeal™ and OraDisc™ technologies; therefore we are continuing to search both domestically and internationally for opportunities that will enable us to continue our business.  At this time, we cannot accurately predict the effect of certain developments on the rate of sales growth during 2010 and beyond, such as the degree of market acceptance, patent protection and exclusivity of our products, the impact of competition, the effectiveness of our sales and marketing efforts, and the outcome of our current efforts to develop, receive approval for, and successfully launch our near-term product candidates.

Based on the proceeds from the closing of the February Offering, our existing liquidity, the expected level of operating expenses, projected sales of our existing products and estimated sales from our product candidates, if approved, combined with other revenues and interest income, we believe that we will be able to meet our working capital and capital expenditure requirements at least through the third quarter of 2011.  We do not expect any material changes in our capital expenditure spending during 2010.  However, we cannot be sure that our anticipated revenue growth will be realized or that we will generate significant positive cash flow from operations.

As we continue to expend funds to advance our business plan, there can be no assurance that changes in our research and development plans, capital expenditures and/or acquisitions of products or businesses, or other events affecting our operations will not result in the earlier depletion of our funds.  In appropriate situations, we may seek financial assistance from other sources, including contribution by others to joint ventures and other collaborative or licensing arrangements for the development, testing, manufacturing and marketing of products under development.  Additionally, we may explore alternative financing sources for our business activities, including the possibility of loans from banks and public and/or private offerings of debt and equity securities; however we cannot be certain that funding will be available on terms acceptable to us, or at all.

Our future capital requirements and adequacy of available funds will depend on many factors including:

§ 
The ability to successfully commercialize our wound management and burn care products and the market acceptance of these products;
§ 
The ability to establish and maintain collaborative arrangements with corporate partners for the research, development and commercialization of certain product opportunities;
§ 
Continued scientific progress in our development programs;
§ 
The costs involved in filing, prosecuting and enforcing patent claims;
§ 
Competing technological developments;
§ 
The cost of manufacturing and production scale-up; and
§ 
Successful regulatory filings.


 
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Contractual Obligations

The following table summarizes our outstanding contractual cash obligations as of December 31, 2009, which consists of a lease agreement for office and laboratory space in Addison, Texas which commenced on April 1, 2006 and a separation agreement with our former chief executive officer which was effective on March 9, 2009.

   
Payments Due By Period
 
Contractual Obligations
 
Total
   
Less Than
1 Year
   
2-3
Years
   
4-5
Years
   
After 5
Years
 
  Operating lease
  $ 370,613     $ 110,740     $ 230,849     $ 29,024     $ ---  
  Separation agreement
    625,000       150,000       300,000       175,000       ---  
  Total contractual cash obligations
  $ 995,613     $ 260,740     $ 530,849     $ 204,024     $ ---  


Off-Balance Sheet Arrangements

As of December 31, 2009, we did not have any off balance sheet arrangements.


Impact of Inflation

We have experienced only moderate price increases over the last three fiscal years under our agreements with third-party manufacturers as a result of raw material and labor price increases.  We have generally passed these price increases along to our customers.  However, there can be no assurance that possible future inflation would not impact our operations.




 
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RESULTS OF OPERATIONS


Fluctuations in Operating Results

Our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the timing and amount of payments received pursuant to our current and future collaborations, and the progress and timing of expenditures related to our development and commercialization efforts. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results may not be a good indication of our future performance.

Comparison of the year ended December 31, 2009 and 2008

Total Revenues

Our revenues totaled $667,949 for the year ended December 31, 2009, as compared to revenues of $733,471 for the year ended December 31, 2008, and were comprised of licensing fees of approximately $193,000 which included $87,000 for two OraDisc™ licensing agreements and $106,000 for a Zindaclin® milestone, domestic royalties of approximately $89,000 from the sale of Aphthasol® by our distributor, foreign royalties of approximately $167,000 from the sale of Zindaclin®, sponsored research programs of approximately $38,000, and product sales of approximately $181,000 for Altrazeal™.

The year ended December 31, 2009 revenues represent an overall decrease of approximately $66,000 versus the comparative 2008 revenues.  Factors contributing to the decrease were lower Aphthasol® product sales of $166,000 as our distributor did not purchase any Aphthasol® in 2009, lower Zindaclin® licensing fees of $40,000, and lower Zindaclin® royalty fees of $30,000.  These adverse factors were partially offset by an increase in Altrazeal™ product sales of $163,000, an increase in sponsored research of $5,000 and an increase in OraDisc™ licensing fees of $2,000.

Costs and Expenses

Cost of Goods Sold

Our cost of goods sold for the year ended December 31, 2009 was $35,073, which was related solely to Altrazeal™ usage.  For the year ended December 31, 2008 our cost of goods sold was $140,822, which included $3,322 for Altrazeal™ and $137,500 for Aphthasol®.



 
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Research and Development

Research and development expenses totaled $2,250,153 for the year ended December 31, 2009, which included $320,239 of share-based compensation, compared to $3,503,638 for the year ended December 31, 2008, which included $161,779 of share-based compensation.  The decrease of approximately $1,254,000 in research and development expenses was due primarily to the Company’s business plan restructuring in July 2009 which contributed to decreases in direct research costs of $908,000 and in scientific personnel costs of $350,000.  We also experienced a decrease of $31,000 in clinical testing expenses as our Altrazeal™ clinical studies were completed.  These expense decreases were partially offset by an increase in regulatory consulting and expenses of $39,000.  The direct research and development expenses for the years ended December 31, 2009 and 2008 were as follows:

   
Year Ended
 December 31,
 
Technology
 
2009
   
2008
 
  Wound care & Nanoflex™
  $ 63,413     $ 713,278  
  OraDisc™
    187,591       456,812  
  Aphthasol® & other technologies
    52,416       41,781  
  Total
  $ 303,420     $ 1,211,871  


Selling, General and Administrative

Selling, general and administrative expenses totaled $5,665,559 for the year ended December 31, 2009, which included $1,295,107 of share-based compensation, compared to $5,992,097 for the year ended December 31, 2008, which included $862,053 in share-based compensation.  The decrease of approximately $327,000 in selling, general and administrative expenses was influenced by the Company’s business plan restructuring in July 2009 which contributed to reductions in several areas, the majority occurring in sales and marketing ($283,000) as we transitioned to an independent sales representative model.  Other areas of decrease included lower travel expenses of $90,000, lower director compensation of $97,000, reduced consulting expenses of $66,000, lower due-diligence costs of $48,000 associated with financing activities, lower costs associated with shareholder and investor relations of $36,000, and lower occupancy and operating costs of $28,000.

These expense decreases were partially offset by an increase in legal fees of $203,000 associated with filings made with the Securities and Exchange Commission, financing activities (including the November Offering), and the proposed York Pharma acquisition.  We also incurred increases in legal services associated with our patent filings of $26,000, higher costs of $6,000 for our external accountants, increased insurance costs of $5,000, and increased administrative compensation of $81,000.  The increase in administrative compensation includes approximately $394,000 of share-based compensation expense after giving effect to vesting accelerations of stock options and restricted stock awards associated with the Company’s business plan restructuring in July 2009 and the separation agreement with our former chief executive officer.  Other factors affecting the administrative compensation increase include $90,000 of costs associated with the aforementioned separation agreement, savings of $130,000 associated with benefit forfeitures pursuant to the separation agreement and savings of $273,000 in accruals for incentives.

Amortization of Intangible Assets

Amortization expense of intangible assets totaled $1,065,390 for the year ended December 31, 2009 as compared to $1,082,571 for the year ended December 31, 2008.  The expense for each period consists primarily of amortization associated with our patents.  There were no additional purchases of patents during the year ended December 31, 2009.

 
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Depreciation

Depreciation expense totaled $186,690 for the year ended December 31, 2009 as compared to $114,048 for the year ended December 31, 2008.  The increase of approximately $73,000 is primarily attributable to our manufacturing equipment for Altrazeal™ and OraDisc™.

Interest and Miscellaneous Income

Interest and miscellaneous income totaled $42,571 for the year ended December 31, 2009, as compared to $317,070 for the year ended December 31, 2008.  The decrease of approximately $274,000 is attributable to a decrease in interest income due to lower cash balances as well as lower interest yields during 2009.

Interest Expense

Interest expense totaled $14,619 for the year ended December 31, 2009 and consisted of financing costs for our insurance policies.  There was no interest expense for the year ended December 31, 2008.

Impairment of Intangible Assets

We performed an evaluation of our intangible assets for purposes of determining possible impairment as of December 31, 2009.  Upon completion of the evaluation, the fair value of our intangible assets exceeded the recorded remaining book value except for the valuation of the patent associated with our Zindaclin® technology.  We recognized an impairment charge of $716,633 for the year ended December 31, 2009.  There was no impairment loss for the year ended December 31, 2008.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth herein are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for financial information. The preparation of our financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate these estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We set forth below those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and which require complex management judgment.

Revenue Recognition

We recognize revenue in accordance with generally accepted accounting principles as outlined in the ASC Topic 605, Revenue Recognition (“ASC Topic 605”), which requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. We recognize revenue as products are shipped based on FOB shipping point terms when title passes to customers. We negotiate credit terms on a customer-by-customer basis and products are shipped at an agreed upon price. All product returns must be pre-approved.

 
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We also generate revenue from license agreements and research collaborations and recognize this revenue when earned. In accordance with ASC Topic 605-25, Revenue Recognition - Multiple Element Arrangements, for deliverables which contain multiple deliverables, we separate the deliverables into separate accounting units if they meet the following criteria: i) the delivered items have a stand-alone value to the customer; ii) the fair value of any undelivered items can be reliably determined; and iii) if the arrangement includes a general right of return, delivery of the undelivered items is probable and substantially controlled by the seller. Deliverables that do not meet these criteria are combined with one or more other deliverables into one accounting unit.  Revenue from each accounting unit is recognized based on the applicable accounting literature, primarily ASC Topic 605.

We analyze the rate of historical returns when evaluating the adequacy of the allowance for sales returns.  At December 31, 2009 and 2008, this reserve was nil as we have not experienced historically any product returns.  If the historical data we use to calculate these estimates does not properly reflect future returns, revenue could be overstated.

Accrued Expenses

As part of the process of preparing financial statements, we are required to estimate accrued expenses.  This process involves identifying services which have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements.

In accruing service fees, we estimate the time period over which services will be provided and the level of effort in each period.  If the actual timing of the provision of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.  The majority of our service providers invoice us monthly in arrears for services performed.  In the event that we do not identify costs that have begun to be incurred or we underestimate or overestimate the level of services performed or the costs of such services, our actual expenses could differ from such estimates.  The date on which some services commence, the level of services performed on or before a given date and the cost of such services are often subjective determinations. We make judgments based upon facts and circumstances known to us in accordance with GAAP.

Share based Compensation – Employee Share based Awards

We primarily grant qualified stock options for a fixed number of shares to employees with an exercise price equal to the market value of the shares at the date of grant.  Under the fair value recognition provisions of ASC Topic 718, Stock Compensation (“ASC Topic 718”), and ASC Topic 505, Equity (“ASC Topic 505”), share based compensation cost is based on the value of the portion of share based awards that is ultimately expected to vest during the period.

We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value for share based awards.  The Black-Scholes model requires the use of assumptions which determine the fair value of the share based awards.  Determining the fair value of share based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock, and expected dividends. In accordance with ASC Topic 718 and ASC Topic 505, we are required to estimate forfeitures at the grant date and recognize compensation costs for only those awards that are expected to vest.  Judgment is required in estimating the amount of share based awards that are expected to be forfeited.

 
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If factors change and we employ different assumptions in the application of ASC Topic 718 and ASC Topic 505 in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.  Therefore, we believe it is important for investors to be aware of the high degree of subjectivity involved when using option pricing models to estimate share-based compensation under ASC Topic 718 and ASC Topic 505.  There is risk that our estimates of the fair values of our share-based compensation awards on the grant dates may differ from the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future.  Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements.  Alternatively, value may be realized from these instruments that is significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements.  Although the fair value of employee share-based awards is determined in accordance with ASC Topic 718 and ASC Topic 505 using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Share based Compensation – Non-Employee Share based Awards

We occasionally grant stock option awards to our consultants and directors.  Such grants are accounted for pursuant to ASC Topic 505 and, accordingly, we recognize compensation expense equal to the fair value of such awards and amortize such expense over the performance period.  We estimate the fair value of each award using the Black-Scholes model.  The unvested equity instruments are revalued on each subsequent reporting date until performance is complete, with an adjustment recognized for any changes in their fair value.  We amortize expense related to non-employee stock options in accordance with ASC Topic 718.

Income Taxes

The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient taxable income in the United States based on estimates and assumptions. We record a valuation allowance to reduce the carrying value of our net deferred tax asset to the amount that is more likely than not to be realized.  In the event we were to determine that we would be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset would increase net income in the period such determination is made.  On a quarterly basis, we evaluate the realizability of our deferred tax assets and assess the requirement for a valuation allowance.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance is regularly evaluated by us for adequacy by taking into consideration factors such as past experience, credit quality of the customer base, age of the receivable balances, both individually and in the aggregate, and current economic conditions that may affect a customer’s ability to pay.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory

We state our inventory at the lower of cost (first-in, first-out method) or market.  The estimated value of excess, obsolete and slow-moving inventory as well as inventory with a carrying value in excess of its net realizable value is established by us on a quarterly basis through review of inventory on hand and assessment of future demand, anticipated release of new products into the market, historical experience and product expiration.  Our stated value of inventory could be materially different if demand for our products decreased because of competitive conditions or market acceptance, or if products become obsolete because of advancements in the industry.
 
Asset Valuations and Review for Potential Impairment

We review our fixed assets and intangible assets at least annually or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  This review requires that we make assumptions regarding the value of these assets and the changes in circumstances that would affect the carrying value of these assets.  If such analysis indicates that a possible impairment may exist, we are then required to estimate the fair value of the asset and, as deemed appropriate, expense all or a portion of the asset.  The determination of fair value includes numerous uncertainties, such as the impact of competition on future value.  We believe that we have made reasonable estimates and judgments in determining whether our long-term assets have been impaired; however, if there is a material change in the assumptions used in our determination of fair value or if there is a material change in economic conditions or circumstances influencing fair value, we could be required to recognize certain impairment charges in the future.
 

 
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Concentrations of Credit Risk

Concentration of credit risk with respect to financial instruments, consisting primarily of cash and cash equivalents, potentially expose us to concentrations of credit risk due to the use of a limited number of banking institutions and due to maintaining cash balances in banks, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation.  During 2009, we utilized Bank of America and Bank of America Investments Services, Inc. as our banking institutions.  At December 31, 2009 and December 31, 2008 our cash and cash equivalents totaled $1,934,177 and $7,567,588, respectively.  We also invest cash in excess of immediate requirements in money market accounts, certificates of deposit, corporate commercial paper with high quality ratings, and U.S. government securities.  These investments are not held for trading or other speculative purposes.  We are exposed to credit risk in the event of default by these institutions.

Concentration of credit risk with respect to trade accounts receivable are customers with balances that exceed 5% of total consolidated trade accounts receivable at December 31, 2009 and at December 31, 2008.  As of December 31, 2009, three customers exceeded the 5% threshold, each customer with 67%, 11%, and 10%, respectively.  Two customers exceeded the 5% threshold at December 31, 2008, one with 94% and the other with 5%.  We believe that the customer accounts are fully collectible as of December 31, 2009.

Foreign Currency Exchange Rate Risk

The royalty revenues we receive on Zindaclin® are a percentage of the net sales made by the various sub-licensees of our licensee, ProStrakan Ltd.  All of these sales are made in foreign countries and the majority are denominated in foreign currencies. The royalty payment on these foreign sales is calculated initially in the foreign currency in which the sale is made and is then converted into U.S. dollars to determine the amount that ProStrakan Ltd pays us for royalty revenues. Fluctuations in the exchange ratio of the U.S. dollar and these foreign currencies will have the effect of increasing or decreasing our royalty revenues even if there is a constant amount of sales in foreign currencies. For example, if the U.S. dollar weakens against a foreign currency, then our royalty revenues will increase given a constant amount of sales in such foreign currency.

The impact on our royalty revenues from foreign currency exchange rate risk is based on a number of factors, including the exchange rate (and the change in the exchange rate from the prior period) between a foreign currency and the U.S. dollar, and the amount of Zindaclin® sales by the various sub-licensees of ProStrakan Ltd that are denominated in foreign currencies. We do not currently hedge our foreign currency exchange rate risk.



The information required by this Item is included in our Financial Statements and Supplementary Data listed in Item 15 of Part IV of this annual report on Form 10-K.
 
 
 
None.



Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on its evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2009, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to the company's management, as appropriate, to allow timely decisions regarding required disclosure, and are operating in an effective manner.

 
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Changes in Internal Controls Over Financial Reporting

During the fiscal quarter ended December 31, 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

§ 
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
   
§ 
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
   
§ 
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that as of December 31, 2009 our internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.



None.


 
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Directors

The information concerning our directors required under this Item is incorporated herein by reference from our definitive proxy statement, to be filed pursuant to Regulation 14A, related to our 2010 Annual Meeting of Stockholders to be held on May 21, 2010 (our “2010 Proxy Statement”).

Information concerning our Audit Committee and the independence of its members, along with information about the financial expert serving on the Audit Committee, will be set forth in the Audit Committee segment of our 2010 Proxy Statement and is incorporated herein by reference.

Executive Officers

The information concerning our executive officers is provided in Item 1 of Part I of this Annual Report on Form 10-K under the caption “Executive Officers and Key Employees”.

Corporate Governance

Information concerning certain corporate governance matters will appear in our 2010 Proxy Statement under “Corporate Governance Matters”, “Meetings of the Board and Certain Committees”, “Compensation Committee Discussion on Executive Compensation”, and “Report of the Audit Committee”.  These portions will be contained in our 2010 Proxy Statement and are incorporated herein by reference.

Section 16(a) Beneficial Ownership Reporting Compliance

Information concerning compliance with Section 16(a) of the Securities and Exchange Act of 1934 will be set forth in the “Section 16(a) Beneficial Ownership Reporting Compliance” segment of our 2010 Proxy Statement and is incorporated herein by reference.

Code of Business Conduct and Ethics

On March 31, 2006 we adopted a written Code of Business Conduct and Ethics for Employees, Executive Officers and Directors, applicable to all employees, management, and directors, designed to deter wrongdoing and promote honest and ethical conduct, full, fair and accurate disclosure, compliance with laws, prompt internal reporting and accountability to adherence to the Code of Business Conduct and Ethics.

Web Availability

We make available free of charge through our web site, www.uluruinc.com, our annual reports on Form 10-K and other reports required under the Securities and Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission as well as certain of our corporate governance policies, including the charters for the Board of Director's corporate governance committees and our code of ethics, corporate governance guidelines and whistleblower policy. We will provide to any person without charge, upon request, a copy of any of the foregoing materials.  Any such request must be made in writing to ULURU Inc., 4452 Beltway Drive, Addison, TX 75001, Attn: Investor Relations.


 
- 42 -




The information concerning executive compensation for the Company required under this Item will be contained in our 2010 Proxy Statement and is incorporated herein by reference.



The information concerning security ownership of certain beneficial owners and management required under this Item will be contained in our 2010 Proxy Statement and is incorporated herein by reference.



The information concerning certain relationships and related transactions, and director independence required under this Item will be contained in our 2010 Proxy Statement and is incorporated herein by reference.



The information concerning principal accountant fees and services required under this Item will be contained in our 2010 Proxy Statement and is incorporated herein by reference.



 
- 43 -





(a)
The following documents are filed as part of this report:
       
 
1.
 
         
     
     
     
     
     
     
         
 
2.
Financial Statement Schedules
 
         
     
All other schedules are omitted because they are not applicable or because the required information is shown in the consolidated financial statements or the notes thereto.
 
         
 
3.
 
         
     
The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index hereto.
 
In reviewing the agreements included as exhibits to this annual report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
 
     
§ 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
 
     
§ 
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
 
     
§ 
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
 
     
§ 
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this annual report on Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
           



 
- 44 -




     
     
Pursuant to the requirements of Section 13 or 15(d) 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
     
 
ULURU Inc.
  
  
  
Date: March 24, 2010
By 
/s/ Renaat Van den Hooff
 
 
Renaat Van den Hooff
 
 
Chief Executive Officer
 
 
Principal Executive Officer
 
     
     
Date: March 24, 2010
By  
/s/ Terrance K. Wallberg
 
 
Terrance K. Wallberg
 
 
Chief Financial Officer
 
 
Principal Accounting Officer
 
     


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date: March 24, 2010
/s/ William W. Crouse
 
 
William W. Crouse, Director
   
   
Date: March 24, 2010
/s/ Jeffrey B. Davis
 
 
Jeffrey B. Davis, Director
   
   
Date: March 24, 2010
/s/ Kerry P. Gray
 
 
Kerry P. Gray, Director
   


 
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- 46 -



 


To the Board of Directors and Stockholders
ULURU Inc.
Addison, Texas


We have audited the consolidated balance sheets of ULURU Inc. (a Nevada corporation) as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2009.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ULURU Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.


/s/ Lane Gorman Trubitt, L.L.P.
Lane Gorman Trubitt, L.L.P.
Dallas, TX

March 24, 2010





 
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CONSOLIDATED BALANCE SHEETS


   
December 31,
 
   
2009
   
2008
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 1,934,177     $ 7,567,588  
Accounts receivable
    218,256       195,562  
Inventory
    1,008,998       1,080,266  
Prepaid expenses and deferred charges
    383,419       468,625  
Total Current Assets
    3,544,850       9,312,041  
                 
Property, Equipment and Leasehold Improvements, net
    1,631,557       1,828,040  
                 
Other Assets
               
Intangible assets, net
    8,183,146       9,965,169  
Deposits
    20,819       20,819  
Total Other Assets
    8,203,965       9,985,988  
                 
TOTAL ASSETS
  $ 13,380,372     $ 21,126,069  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Accounts payable
  $ 617,443     $ 1,441,986  
Accrued liabilities
    215,431       648,546  
Deferred revenue – current portion
    96,897       122,164  
Royalty advance
    ---       30,417  
Total Current Liabilities
    929,771       2,243,113  
                 
Long Term Liabilities
               
Deferred revenue, net – less current portion
    1,272,843       1,356,526  
                 
TOTAL LIABILITIES
    2,202,614       3,599,639  
                 
COMMITMENTS AND CONTINGENCIES
    ---       ---  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock – $0.001 par value; 20,000 shares authorized;
               
no shares issued and outstanding
    ---       ---  
                 
Common Stock – $ 0.001 par value; 200,000,000 shares authorized;
               
76,813,886 and 65,509,481 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively
    76,814       65,510  
Additional paid-in capital
    46,923,499       44,057,757  
Accumulated  (deficit)
    (35,822,555 )     (26,596,837 )
TOTAL STOCKHOLDERS’ EQUITY
    11,177,758       17,526,430  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 13,380,372     $ 21,126,069  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 


 
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CONSOLIDATED STATEMENTS OF OPERATIONS
 
 

   
Years Ended December 31,
 
   
2009
   
2008
 
REVENUES
           
License fees
  $ 193,290     $ 230,308  
Royalty income
    255,738       286,303  
Product sales
    180,731       184,050  
Other
    38,190       32,810  
Total Revenues
    667,949       733,471  
                 
COSTS AND EXPENSES
               
Cost of goods sold
    35,073       140,822  
Research and development
    2,250,153       3,503,638  
Selling, general and administrative
    5,665,559       5,992,097  
Amortization of intangible assets
    1,065,390       1,082,571  
Depreciation
    186,690       114,048  
Total Costs and Expenses
    9,202,865       10,833,176  
                 
OPERATING (LOSS)
    (8,534,916 )     (10,099,705 )
                 
Other Income (Expense)
               
Interest and miscellaneous income
    42,571       317,070  
Interest expense
    (14,619 )     ---  
Impairment of intangible assets
    (716,633 )     ---  
Loss on sale of equipment
    (2,121 )     ---  
                 
(Loss) Before Income Taxes
    (9,225,718 )     (9,782,635 )
                 
Income taxes
    ---       ---  
                 
NET (LOSS)
  $ (9,225,718 )   $ (9,782,635 )
                 
                 
                 
Basic and diluted net (loss) per common share
  $ (0.14 )   $ (0.15 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    67,168,941       63,775,653  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
   
   
Years Ended December 31, 2009 and 2008
 
   
Common Stock
   
Additional Paid-in
   
Accumulated
   
Stockholders’
 
   
Shares Issued
   
Amount
   
Capital
   
(Deficit)
   
Equity (Deficit)
 
                               
Balance as of December 31, 2007
    62,416,881       62,417       42,989,518       (16,814,202 )     26,237,733  
                                         
Issuance of common stock – 3,042,600 shares for cashless exercise of warrants (3,066,667 shares)
    3,042,600       3,043       (3,043 )     ---       ---  
                                         
Issuance of common stock for exercise of stock options
    50,000       50       47,450       ---       47,500  
                                         
Share-based compensation of employees
    ---       ---       844,340       ---       844,340  
Share-based compensation of non-employees
    ---       ---       179,492       ---       179,492  
                                         
Net (loss) for the year
    ---       ---       ---       (9,782,635 )     (9,782,635 )
Balance as of December 31, 2008
    65,509,481     $ 65,510     $ 44,057,757     $ (26,596,837 )   $ 17,526,430  
                                         
Issuance of common stock and warrants in a private placement, net of fund raising costs ($279,919)
    10,714,467       10,714       1,250,986       ---       1,261,700  
                                         
Issuance of common stock – vesting of restricted stock
    589,938       590       (590 )     ---       ---  
                                         
Share-based compensation of employees
    ---       ---       1,521,084       ---       1,521,084  
Share-based compensation of non-employees
    ---       ---       94,262       ---       94,262  
                                         
Net (loss) for the year
    ---       ---       ---       (9,225,718 )     (9,225,718 )
Balance as of December 31, 2009
    76,813,886     $ 76,814     $ 46,923,499     $ (35,822,555 )   $ 11,177,758  
                                         
The accompanying notes are an integral part of these consolidated financial statements.
 


 
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CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Years Ended December 31,
 
   
2009
   
2008
 
OPERATING ACTIVITIES :
           
Net (loss)
  $ (9,225,718 )   $ (9,782,635 )
                 
Adjustments to reconcile net (loss) to net cash used in operating activities:
               
                 
Amortization of intangible assets
    1,065,390       1,082,571  
Depreciation
    201,390       138,292  
Share-based compensation for stock and options issued to employees
    1,521,084       844,340  
Share-based compensation for options issued to non-employees
    94,262       179,492  
Impairment of intangible assets
    716,633       ---  
Loss on sale of equipment
    2,120       ---  
                 
Change in operating assets and liabilities:
               
Accounts receivable
    (22,694 )     640,513  
Inventory
    71,268       (760,853 )
Prepaid expenses and deferred charges
    85,206       (67,795 )
Deposits
    ---       (320 )
Accounts payable
    (824,543 )     651,574  
Accrued liabilities
    (433,115 )     224,151  
Deferred revenue
    (108,950 )     928,262  
Royalty advance
    (30,417 )     (89,618 )
Total
    2,337,634       3,770,609  
                 
Net Cash (Used in) Operating Activities
    (6,888,084 )     (6,012,026 )
                 
INVESTING ACTIVITIES :
               
Purchase of property and equipment
    (14,177 )     (447,714 )
Investment in notes receivable
    (1,018,219 )     ---  
Proceeds from notes receivable
    1,018,219       ---  
Proceeds from sale of equipment
    7,150       ---  
Net Cash (Used in) Investing Activities
    (7,027 )     (447,714 )
                 
FINANCING ACTIVITIES :
               
Proceeds from sale of common stock and warrants, net
    1,261,700       ---  
Proceeds from stock option exercises
    ---       47,500  
Net Cash Provided by Financing Activities
    1,261,700       47,500  
                 
Net (Decrease) in Cash
    (5,633,411 )     (6,412,240 )
                 
Cash,  beginning of period
    7,567,588       13,979,828  
Cash,  end of period
  $ 1,934,177     $ 7,567,588  
                 
Supplemental Schedule of Noncash Investing and Financing Activities :
               
                 
Issuance of 3,042,600 shares of common stock pursuant to cashless exercise of warrants to purchase 3,066,667 shares of common stock
          $ ---  
                 
OTHER SUPPLEMENTAL INFORMATION 
               
Cash paid for interest
  $ 3,138     $ ---  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 


 
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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1.                      COMPANY OVERVIEW AND BASIS OF PRESENTATION

Company Overview

ULURU Inc. (hereinafter “we”, “our”, “us”, “ULURU”, or the “Company”) is a Nevada corporation.
We are a diversified specialty pharmaceutical company committed to developing and commercializing a broad range of innovative wound care and muco-adhesive film products based on our patented NanoflexTM and OraDiscTM drug delivery technologies, with the goal of improving outcomes for patients, health care professionals, and health care payers.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United State of America (“U.S. GAAP”) and include the accounts of ULURU Inc., a Nevada corporation, and its wholly-owned subsidiary, Uluru Delaware Inc., a Delaware corporation.  Both companies have a December 31 fiscal year end.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results may differ from those estimates and assumptions.  These differences are usually minor and are included in our consolidated financial statements as soon as they are known.  Our estimates, judgments, and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

All intercompany transactions and balances have been eliminated in consolidation.


NOTE 2.                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements:

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.  The carrying value of these cash equivalents approximates fair value.

We invest cash in excess of immediate requirements in money market accounts, certificates of deposit, corporate commercial paper with high quality ratings, and U.S. government securities taking into consideration the need for liquidity and capital preservation.  These investments are not held for trading or other speculative purposes.

 
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Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest.  The Company estimates the collectibility of our trade accounts receivable. In order to assess the collectibility of these receivables, we monitor the current creditworthiness of each customer and analyze the balances aged beyond the customer's credit terms. Theses evaluations may indicate a situation in which a certain customer cannot meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance requirements are based on current facts and are reevaluated and adjusted as additional information is received. Trade accounts receivable are subject to an allowance for collection when it is probable that the balance will not be collected. As of December 31, 2009 and  2008, no allowance for collectibility was needed and there were no accounts written off as uncollectible during the years ended December 31, 2009 and 2008.

Inventory

Inventories are stated at the lower of cost or market value. Raw material inventory cost is determined on the first-in, first-out method. Costs of finished goods are determined by an actual cost method.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method.  Estimated useful lives for property and equipment categories are as follows:

Furniture, fixtures, and laboratory equipment
7 years
Computer and office equipment
5 years
Computer software
3 years
Leasehold improvements
Lease term

Prepaid Expenses and Deferred Charges

From time to time fees are payable to the United States Food and Drug Administration (“FDA”) in connection with new drug applications submitted by the Company and annual prescription drug user fees. Such fees are being amortized ratably over the FDA’s prescribed fiscal period of 12 months ending September 30th.

Additionally, we amortize our insurance costs ratably over the term of each policy.  Typically, our insurance policies are subject to renewal in July and October of each year.

Patents and Applications

We expense internal patent and application costs as incurred because, even though we believe the patents and underlying processes have continuing value, the amount of future benefits to be derived from them are uncertain. Purchased patents are capitalized and amortized over the life of the patent.

Impairment of Assets

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 350-30, Intangibles Other than Goodwill, our policy is to evaluate whether there has been a permanent impairment in the value of long-lived assets and certain identifiable intangibles when certain events have taken place that indicate the remaining unamortized balance may not be recoverable, or at least annually to determine the current value of the intangible asset. When factors indicate that the intangible assets should be evaluated for possible impairment, we use an estimate of undiscounted cash flows.  Considerable management judgment is necessary to estimate the undiscounted cash flows.  Accordingly, actual results could vary significantly from management’s estimates.
 

 
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Accrual for Clinical Study Costs

We record accruals for estimated clinical study costs.  Clinical study costs represent costs incurred by clinical research organizations, or CROs, and clinical sites.  These costs are recorded as a component of R&D expenses.  We analyze the progress of the clinical trials, including levels of patient enrollment and/or patient visits, invoices received and contracted costs when evaluating the adequacy of the accrued liabilities.  Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period.  Actual costs incurred may or may not match the estimated costs for a given accounting period.

Income Taxes

We use the liability method of accounting for income taxes pursuant to ASC Topic 740, Income Taxes.  Under this method, deferred income taxes are recorded to reflect the tax consequences in future periods of temporary differences between the tax basis of assets and liabilities and their financial statement amounts at year-end.

Revenue Recognition and Deferred Revenue

License Fees

We recognize revenue from license payments not tied to achieving a specific performance milestone ratably during the period over which we are obligated to perform services. The period over which we are obligated to perform services is estimated based on available facts and circumstances. Determination of any alteration of the performance period normally indicated by the terms of such agreements involves judgment on management's part. License revenues with no specific performance criteria are recognized when received from our foreign licensee and their various foreign sub-licensees as there is no control by us over the various foreign sub-licensees and no performance criteria to which we are subject.

We recognize revenue from performance payments ratably, when such performance is substantially in our control and when we believe that completion of such performance is reasonably probable, over the period during which we estimate that we will complete such performance obligations.  In circumstances where the arrangement includes a refund provision, we defer revenue recognition until the refund condition is no longer applicable unless, in our judgment, the refund circumstances are within our operating control and are unlikely to occur.

Substantive at-risk milestone payments, which are based on achieving a specific performance milestone when performance of such milestone is contingent on performance by others or for which achievement cannot be reasonably estimated or assured, are recognized as revenue when the milestone is achieved and the related payment is due, provided that there is no substantial future service obligation associated with the milestone.

 
- 54 -



Royalty Income

We receive royalty revenues under license agreements with a number of third parties that sell products based on technology we have developed or to which we have rights. The license agreements provide for the payment of royalties to us based on sales of the licensed product. We record these revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided by licensees and analysis of historical royalties we have been paid (adjusted for any changes in facts and circumstances, as appropriate).

We maintain regular communication with our licensees in order to gauge the reasonableness of our estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, typically the following quarter. Historically, adjustments have not been material based on actual amounts paid by licensees. As it relates to royalty income, there are no future performance obligations on our part under these license agreements. To the extent we do not have sufficient ability to accurately estimate revenue; we record it on a cash basis.

Product Sales

We recognize revenue and related costs from the sale of our products at the time the products are shipped to the customer.  Provisions for returns, rebates, and discounts are established in the same period the related product sales are recorded.

We review the supply levels of our products sold to major wholesalers in the U.S., primarily by reviewing reports supplied by our major wholesalers and available volume information for our products, or alternative approaches.  Causes of unusual wholesaler buying patterns include actual or anticipated product supply issues, weather patterns, anticipated changes in the transportation network, redundant holiday stocking, and changes in wholesaler business operations.  When we believe wholesaler purchasing patterns have caused an unusual increase or decrease in the sales of a major product compared with underlying demand, we disclose this in our product sales discussion if we believe the amount is material to the product sales trend; however, we are not always able to accurately quantify the amount of stocking or destocking.  Wholesaler stocking and destocking activity historically has not caused any material changes in the rate of actual product returns.

We establish sales return accruals for anticipated product returns. We record the return amounts as a deduction to arrive at our net product sales.  Consistent with Revenue Recognition accounting guidance, we estimate a reserve when the sales occur for future product returns related to those sales. This estimate is primarily based on historical return rates as well as specifically identified anticipated returns due to known business conditions and product expiry dates. Actual product returns have been nil over the past two years.

We establish sales rebate and discount accruals in the same period as the related sales.  The rebate and discount amounts are recorded as a deduction to arrive at our net product sales.  We base these accruals primarily upon our historical rebate and discount payments made to our customer segment groups and the provisions of current rebate and discount contracts.

Sponsored Research Income

Sponsored research income has no significant associated costs since it is being paid only for information pertaining to a specific research and development project in which the sponsor may become interested in acquiring products developed thereby.  Payments received prior to the Company’s performance are deferred. Contract amounts are not recognized as revenue until the customer accepts or verifies the research has been completed.

 
- 55 -



Research and Development Expenses

Pursuant to ASC Topic 730, Research and Development, our research and development costs are expensed as incurred.

Research and development expenses include, but are not limited to, salaries and benefits, laboratory supplies, facilities expenses, preclinical development cost, clinical trial and related clinical manufacturing expenses, contract services, consulting fees and other outside expenses. The cost of materials and equipment or facilities that are acquired for research and development activities and that have alternative future uses are capitalized when acquired. There were no such capitalized materials, equipment or facilities for the years ended December 31, 2009 and 2008.

We may enter into certain research agreements in which we share expenses with a collaborator. We may also enter into other collaborations where we are reimbursed for work performed on behalf of our collaborative partners.  We record the expenses for such work as research and development expenses. If the arrangement is a cost-sharing arrangement and there is a period during which we receive payments from the collaborator, we record payments by the collaborator for their share of the development effort as a reduction of research and development expense. If the arrangement is a reimbursement of research and development expenses, we record the reimbursement as sponsored research income.

Basic and Diluted Net Loss Per Share

In accordance with ASC Topic 260, Earnings per Share, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period increased to include potential dilutive common shares.  The effect of outstanding stock options, restricted vesting common stock and warrants, when dilutive, is reflected in diluted earnings (loss) per common share by application of the treasury stock method.  We have excluded all outstanding stock options, restricted vesting common stock and warrants from the calculation of diluted net loss per common share because all such securities are antidilutive for all periods presented.

Concentrations of Credit Risk

Concentration of credit risk with respect to financial instruments, consisting primarily of cash and cash equivalents, that potentially expose us to concentrations of credit risk due to the use of a limited number of banking institutions and due to maintaining cash balances in banks, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation (FDIC).  During 2009, we utilized Bank of America and Bank of America Investments Services, Inc. as our banking institutions.  At December 31, 2009 and December 31, 2008 our cash and cash equivalents totaled $1,934,177 and $7,567,588, respectively.

We also invest cash in excess of immediate requirements in money market accounts, certificates of deposit, corporate commercial paper with high quality ratings, and U.S. government securities.  These investments are not held for trading or other speculative purposes.  We are exposed to credit risk in the event of default by these high quality corporations.

Concentration of credit risk with respect to trade accounts receivable are customers with balances that exceed 5% of total consolidated trade accounts receivable at December 31, 2009 and at December 31, 2008.  As of December 31, 2009, three customers exceeded the 5% threshold, each customer with 67%, 11%, and 10%, respectively.  Two customers exceeded the 5% threshold at December 31, 2008, one with 94% and the other with 5%.  We believe that the customer accounts are fully collectible as of December 31, 2009.

 
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Fair Value of Financial Instruments

Effective January 1, 2008, we partially adopted ASC Topic 820, Fair Value Measurements.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.   As permitted, the Company elected to defer the adoption of the nonrecurring fair value measurement disclosure of nonfinancial assets and liabilities until January 1, 2009.  The adoption of ASC 820 did not have a material impact on the Company’s results of operations, cash flows or financial position.  To increase consistency and comparability in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 
Level 1 —
quoted prices (unadjusted) in active markets for identical assets or liabilities;

 
Level 2 —
observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

 
Level 3 —
assets and liabilities whose significant value drivers are unobservable.

 
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions.  Unobservable inputs require significant management judgment or estimation.  In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.  In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.  Such determination requires significant management judgment.  There were no changes in the Company’s valuation techniques used to measure fair value on a recurring or non-recurring basis as a result of adopting ASC Topic 820.  There were no financial assets or liabilities measured at fair value, with the exception of cash, accounts receivable, accounts payable, and accrued liabilities as of December 31, 2009 and 2008.  The fair values of these financial instruments approximate their carrying amounts.

Derivatives

We occasionally issue financial instruments that contain an embedded instrument. At inception, we assess whether the economic characteristics of the embedded derivative instrument are clearly and closely related to the economic characteristics of the financial instrument (host contract), whether the financial instrument that embodies both the embedded derivative instrument and the host contract is currently measured at fair value with changes in fair value reported in earnings, and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

If the embedded derivative instrument is determined not to be clearly and closely related to the host contract, is not currently measured at fair value with changes in fair value reported in earnings, and the embedded derivative instrument would qualify as a derivative instrument, the embedded derivative instrument is recorded apart from the host contract and carried at fair value with changes recorded in current-period earnings.

We determined that all embedded items associated with financial instruments during 2009 and 2008 which qualify for derivative treatment, were properly separated from their host.  As of December 31, 2009 and 2008, we did not have any derivative instruments.


 
- 57 -



NOTE 3.                      THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Standards

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, hereafter referred to as Accounting Standards Codification (the “Codification,” “ASC”, or “ASC Topic 105”).  ASC Topic 105 is the sole source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative US GAAP for SEC registrants.  The Codification supersedes all then-existing non-SEC accounting and reporting standards.  All other non-grandfathered non-SEC accounting literature not included in the Codification are non-authoritative.  Following the adoption of the Codification, the FASB will issue Accounting Standards Updates, which the FASB will not consider as authoritative in their own right, but which will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.  We adopted ASC Topic 105 effective with our consolidated financial statements as of September 30, 2009.  The adoption of ASC Topic 105 did not have a material impact on our consolidated financial statements.

In May 2009, FASB issued SFAS No. 165, Subsequent Events, which was primarily codified into Topic 855 Subsequent Events (“ASC Topic 855”) in the ASC.  ASC Topic 855 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Specifically, ASC Topic 855 requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the issuance of their financial statements. ASC Topic 855 is effective for interim and annual reporting periods ending after June 15, 2009. We adopted this statement in the second quarter of fiscal 2009 and the adoption did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, (“SFAS No. 141R”), which was primarily codified into Topic 805 Business Combinations (“ASC Topic 805”) in the ASC.  ASC Topic 805 retains the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree.  ASC Topic 805 also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  ASC Topic 805 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The impact of adopting ASC Topic 805 will be dependent on the future business combinations that the Company may pursue after its effective date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an Amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”), which was primarily codified into Topic 810 Consolidations (“ASC Topic 810”) in the ASC.  ASC Topic 810 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.  ASC Topic 810 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  ASC Topic 810 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The adoption did not have a material effect on our consolidated financial statements.


 
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NOTE 4.                      SEGMENT INFORMATION

We operate in one business segment: the research, development and commercialization of pharmaceutical products.  Our corporate headquarters in the United States collects product sales, licensing fees, royalties, and sponsored research revenues from our arrangements with external customers and licensees.  Our entire business is managed by a single management team, which reports to the Chief Executive Officer.

Our revenues are currently derived primarily from one licensee for domestic activities, three licensees for international activities, and our sales force for the domestic sales of Altrazeal™.

Revenues per geographic area for the year ended December 31 are summarized as follows:

Revenues
 
2009
   
%
   
2008
   
%
 
  Domestic
  $ 275,323       41 %   $ 268,668       37 %
  International
    392,626       59 %     464,803       63 %
  Total
  $ 667,949       100 %   $ 733,471       100 %

A significant portion of our revenues are derived from a few major customers.  Customers with greater than 10% of total sales for the year ended December 31 are represented on the following table:

Customers
Product
 
2009
   
2008
 
  ProStrakan, Ltd.
  Zindaclin®
    41 %     47 %
  Discus Dental, Inc.
  Aphthasol®
    13 %     35 %
  Meldex International
  OraDisc™ B
    12 %     11 %
  Total
      66 %     93 %
 
 
NOTE 5.                      INVENTORY

As of December 31, 2009, our inventory was comprised of raw materials, manufacturing costs incurred in the production of Altrazeal™ and Aphthasol®, and Altrazeal™ finished goods.  Inventory consisted of the following at December 31:

Inventory
 
2009
   
2008
 
  Raw materials
  $ 112,002     $ 113,916  
  Work-in-progress
    375,228       344,921  
  Finished goods
    521,768       621,429  
  Total
  $ 1,008,998     $ 1,080,266  
 
 
NOTE 6.                      PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, net, consisted of the following at December 31:

Property, equipment and leasehold improvements
 
2009
   
2008
 
  Laboratory equipment
  $ 424,888     $ 427,888  
  Manufacturing equipment
    1,483,223       1,469,046  
  Computers, office equipment, and furniture
    140,360       150,589  
  Computer software
    4,108       4,108  
  Leasehold improvements
    95,841       95,841  
      2,148,420       2,147,472  
  Less: accumulated depreciation and amortization
    ( 516,863 )     ( 319,432 )
  Property, equipment and leasehold improvements, net
  $ 1,631,557     $ 1,828,040  

Depreciation expense on property, equipment, and leasehold improvements was $201,390, of which $14,700 was included in cost of goods sold, and $152,555, of which $24,244 was included in cost of goods sold, for the years ended December 31, 2009 and 2008, respectively.


 
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NOTE 7.                      INTANGIBLE ASSETS

Intangible assets are comprised of patents acquired in October, 2005.  Intangible assets, net consisted of the following at December 31:

Intangible assets
 
2009
   
2008
 
  Patent - Zindaclin®
  $ 3,729,000     $ 3,729,000  
  Patent - Amlexanox (Aphthasol®)
    2,090,000       2,090,000  
  Patent - Amlexanox (OraDisc™ A)
    6,873,080       6,873,080  
  Patent - OraDisc™
    73,000       73,000  
  Patent - Hydrogel nanoparticle aggregate
    589,858       589,858  
      13,354,938       13,354,938  
  Less: accumulated amortization
    ( 4,455,159 )     ( 3,389,769 )
  Less: impairment charge
    ( 716,633 )     ---  
  Intangible assets, net
  $ 8,183,146     $ 9,965,169  

We performed an evaluation of our intangible assets for purposes of determining possible impairment as of December 31, 2009.  Based upon recent market conditions, and a lack of comparable market transactions for similar intangible assets, we determined that an income approach using a discounted cash flow model was an appropriate valuation methodology to determine each intangible asset’s fair value.  The income approach converts future amounts to a single present value amount (discounted cash flow model).  Our discounted cash flow models are highly reliant on various assumptions, including estimates of future cash flow (including long-term growth rates), discount rate, and expectations about variations in the amount and timing of cash flows and the probability of achieving the estimated cash flows, all of which the Company considers level 3 inputs for determination of fair value.  We believe we have appropriately reflected our best estimate of the assumptions that market participants would use in determining the fair value of our intangible assets at the measurement date.  Upon completion of the evaluation, the fair value of our intangible assets exceeded the recorded remaining book value except for the valuation of the patent associated with our Zindaclin® technology.  We recognized an impairment charge of $716,633 for the year ended December 31, 2009.

Amortization expense for intangible assets was $1,065,390 and $1,068,308 for the years ended December 31, 2009 and 2008, respectively.  The future aggregate amortization expense for intangible assets, remaining as of December 31, 2009, is as follows:

Calendar Years
 
Future Amortization
Expense
 
  2010
    999,750  
  2011
    949,796  
  2012
    657,608  
  2013
    655,812  
  2014
    655,812  
  2015 & Beyond
    4,264,368  
  Total
  $ 8,183,146  


 
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NOTE 8.                      ACCRUED LIABILITIES

Accrued liabilities consisted of the following at December 31:

Accrued Liabilities
 
2009
   
2008
 
  Accrued taxes – payroll
  $ 106,299     $ 106,299  
  Accrued compensation/benefits
    56,837       430,583  
  Accrued insurance payable
    52,295       ---  
  Contract research/clinical payable
    ---       110,180  
  Other
    ---       1,484  
  Total accrued liabilities
  $ 215,431     $ 648,546  


NOTE 9.                      ROYALTY ADVANCE

As part of the October 12, 2005 asset purchase from Access, we assumed the liability associated with an advanced royalty payment of $500,000 to Access by Discus Dental, our United States distributor for Aphthasol® paste.  Royalties earned from the sale of Aphthasol® by the distributor will first be offset against the advanced royalty. The royalty advance was fully extinguished in May 2009, and the Company now receives royalty payments from Discus Dental.  The royalties earned for the year ended December 31, 2009 were $88,592.

Royalty Advance, April 2005
  $ 500,000  
         
  Royalties earned – 2005
    30,944  
  Royalties earned – 2006
    249,788  
  Royalties earned – 2007
    99,233  
  Royalties earned – 2008
    89,618  
Royalty Advance, as of December 31, 2008
    30,417  
         
  Royalties earned – 2009 (January – May)
    30,417  
Royalty Advance, as of December 31, 2009
  $ ---  


 
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NOTE 10.                      EQUITY TRANSACTIONS

On November 9, 2009, we entered into an engagement letter with Rodman & Renshaw, LLC, to act as our exclusive placement agent on a reasonable best efforts basis for an offering of our securities.

On November 11, 2009, we entered into a Securities Purchase Agreement with several institutional investors whereby we agreed to sell and issue to those investors the following securities (the “November Offering”):

 
§ 
10,714,467 shares of our common stock, par value $0.001 per share; and
 
§ 
Warrants to purchase up to 5,357,233 shares of our common stock (the “Warrants”)

The Warrants have an initial exercise price of $0.19 per share, and may be exercised at any time and from time to time on or after May 15, 2010 through and including May 15, 2015.

On November 16, 2009, we closed the November Offering and received aggregate net proceeds of approximately $1.26 million, after deducting placement agent fees and offering expenses payable by us (and excluding any proceeds from exercise of the Warrants).

Rodman & Renshaw, LLC, acting as our exclusive placement agent, received a placement fee of $105,002 (equal to 7% of the aggregate gross proceeds of the November Offering) as well as compensation warrants to purchase up to an aggregate of 535,723 shares (equal to 5% of the aggregate number of shares sold in the November Offering) of our common stock at an exercise price of $0.238 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Institutions Regulatory Authority.

We completed the offering and sale of the above shares and warrants in the November Offering pursuant to a shelf registration statement on Form S-3 (Registration No. 333-160568) declared effective by the Securities and Exchange Commission on July 23, 2009, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on November 13, 2009.


 
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NOTE 11.                      STOCKHOLDERS’ EQUITY

Common Stock

As of December 31, 2009, the Company had 76,813,886 shares of common stock issued and outstanding.  The Company issued 11,304,405 shares of common stock for the year ended December 31, 2009 comprised of 589,938 shares of common stock for the vesting of certain restricted stock awards and 10,714,467 shares of common stock for the equity raise completed on November 16, 2009.

Warrants

The following table summarizes the warrants outstanding and the number of shares of common stock subject to exercise as of December 31, 2009 and the changes therein during the two years then ended:
 
   
Number of Shares of Common Stock Subject to Exercise
   
Weighted – Average
Exercise Price
 
Balance as of December 31, 2007
    5,861,667     $ 0.52  
                 
Warrants issued
    ---       ---  
Warrants exercised
    (3,066,667 )     0.01  
Warrants cancelled
    ---       ---  
Balance as of December 31, 2008
    2,795,000     $ 1.07  
                 
Warrants issued
    5,892,956       0.19  
Warrants exercised
    ---       ---  
Warrants cancelled
    ---       ---  
Balance as of December 31, 2009
    8,687,956     $ 0.48  

 
Of the warrant shares subject to exercise as of December 31, 2009, expiration of the right to exercise is as follows:
Date of expiration
 
Number of Warrant Shares of Common Stock Subject to Expiration
 
  August 30, 2011
    1,125,000  
  December 6, 2011
    1,670,000  
  July 23, 2014
    535,723  
  May 15, 2015
    5,357,233  
  Total
    8,687,956  


 
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NOTE 12.                      EARNINGS PER SHARE

Basic and Diluted Net Loss Per Share

In accordance with ASC Topic 260, Earnings per Share, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, increased to include potential dilutive common shares.  The effect of outstanding stock options, restricted vesting common stock and warrants, when dilutive, is reflected in diluted earnings (loss) per common share by application of the treasury stock method.  We have excluded all outstanding stock options, restricted vesting common stock and warrants from the calculation of diluted net loss per common share because all such securities are antidilutive for all periods presented.

Shares used in calculating basic and diluted net loss per common share exclude these potential common shares as of December 31:

   
2009
   
2008