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EX-31.1 - CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND 15D-14(A) - ULURU Inc.ex_31-1.htm
EX-31.2 - CERTIFICATE OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(A) AND 15D-14(A) - ULURU Inc.ex_31-2.htm
EX-32.2 - CERTIFICATE OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - ULURU Inc.ex_32-2.htm
EX-32.1 - CERTIFICATE OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 - ULURU Inc.ex_32-1.htm


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

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended: March 31, 2010

OR

[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from: ___ to ___.

Commission File Number: 000-49670

ULURU Inc.
(Exact Name of Registrant as Specified in its Charter)

Nevada
41-2118656
(State or Other Jurisdiction of
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 

4452 Beltway Drive
Addison, Texas
75001
(Address of Principal Executive Offices)
(Zip Code)

(214) 905-5145
Registrant's Telephone Number, including Area Code

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  þ    No  o

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 to 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  þ    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerate filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

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


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

As of May 14, 2010, there were 81,946,657 shares of the registrant’s Common Stock, $0.001 par value per share, issued and outstanding.

 
 

 



INDEX TO FORM 10-Q

For the Three Months Ended MARCH 31, 2010



   
Page
 
     
     
 
 
 
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
     





CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31, 2010
   
December 31, 2009
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 2,202,801     $ 1,934,177  
Accounts receivable
    195,338       218,256  
Inventory
    950,147       1,008,998  
Prepaid expenses and deferred charges
    316,987       383,419  
Total Current Assets
    3,665,273       3,544,850  
                 
Property, Equipment and Leasehold Improvements, net
    1,581,567       1,631,557  
                 
Other Assets
               
Intangible assets, net
    7,936,630       8,183,146  
Deposits
    18,069       20,819  
Total Other Assets
    7,954,699       8,203,965  
                 
TOTAL ASSETS
  $ 13,201,539     $ 13,380,372  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities
               
Accounts payable
  $ 784,864     $ 617,443  
Accrued liabilities
    182,910       215,431  
Deferred revenue – current portion
    98,183       96,897  
Total Current Liabilities
    1,065,957       929,771  
                 
Long Term Liabilities
               
Deferred revenue, net – less current portion
    1,248,311       1,272,843  
                 
TOTAL LIABILITIES
    2,314,268       2,202,614  
                 
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;
               
81,946,657 and 76,813,886 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively
    81,947       76,814  
Additional paid-in capital
    47,930,378       46,923,499  
Accumulated  (deficit)
    (37,125,054 )     (35,822,555 )
TOTAL STOCKHOLDERS’ EQUITY
    10,887,271       11,177,758  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 13,201,539     $ 13,380,372  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


   
Three Months Ended March 31,
 
   
2010
   
2009
 
REVENUES
           
License fees
  $ 22,383     $ 24,651  
Royalty income
    53,061       79,245  
Product sales
    159,786       32,643  
Other
    ---       32,190  
Total Revenues
    235,230       168,729  
                 
COSTS AND EXPENSES
               
Cost of goods sold
    130,683       6,077  
Research and development
    285,784       775,418  
Selling, general and administrative
    816,888       2,224,619  
Amortization of intangible assets
    246,516       266,267  
Depreciation
    49,990       32,571  
Total Costs and Expenses
    1,529,861       3,304,952  
                 
OPERATING (LOSS)
    (1,294,631 )     (3,136,223 )
                 
Other Income (Expense)
               
Interest and miscellaneous income
    121       14,554  
Interest expense
    (7,988 )     ---  
                 
(LOSS) BEFORE INCOME TAXES
    (1,302,498 )     (3,121,669 )
                 
Income taxes
    ---       ---  
                 
NET (LOSS)
  $ (1,302,498 )   $ (3,121,669 )
                 
                 
Basic and diluted net (loss) per common share
  $ (0.02 )   $ (0.05 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    79,955,904       65,525,288  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended March 31,
 
   
2010
   
2009
 
OPERATING ACTIVITIES :
           
Net (loss)
  $ (1,302,498 )   $ (3,121,669 )
                 
Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities:
               
                 
Amortization of intangible assets
    246,516       266,267  
Depreciation
    49,990       47,271  
Share-based compensation for stock and options issued to employees
    146,081       756,657  
Share-based compensation for options issued to non-employees
    7,951       44,457  
                 
Change in operating assets and liabilities:
               
Accounts receivable
    22,918       (36,723 )
Inventory
    58,851       6,477  
Prepaid expenses and deferred charges
    66,431       117,140  
Deposits
    2,750       ---  
Accounts payable
    167,421       (323,953 )
Accrued liabilities
    (32,521 )     (101,955 )
Deferred revenue
    (23,246 )     (46,841 )
Royalty advance
    ---       (21,163 )
Total
    713,142       707,634  
                 
Net Cash (Used in) Operating Activities
    (589,356 )     (2,414,035 )
                 
INVESTING ACTIVITIES :
               
Purchase of property and equipment
    ---       (14,177 )
Net Cash (Used in) Investing Activities
    ---       (14,177 )
                 
FINANCING ACTIVITIES :
               
Proceeds from sale of common stock, net
    857,980       ---  
Net Cash Provided by Financing Activities
    857,980       ---  
                 
Net Increase (Decrease) in Cash
    268,624       (2,428,212 )
                 
Cash,  beginning of period
    1,934,177       7,567,588  
Cash,  end of period
  $ 2,202,801     $ 5,139,376  
                 
                 
Supplemental Schedule of Noncash Investing and Financing Activities :
               
                 
OTHER SUPPLEMENTAL INFORMATION 
               
Cash paid for interest
  $ 488     $ ---  
                 
The accompanying notes are an integral part of these consolidated financial statements.
 




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and include the account of ULURU Inc., a Nevada corporation, and its wholly-owned subsidiary, Uluru Delaware Inc., a Delaware corporation.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of March 31, 2010 and the results of its operations for the three months ended March 31, 2010 and 2009 and cash flows for the three months ended March 31, 2010 and 2009 have been made.

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.

Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 24, 2010.


NOTE 2.                      SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2010 are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on March 24, 2010.
 
 
NOTE 3.                      THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

New Accounting Standards Not Yet Adopted

In March 2010, the Financial Accounting Standards Board Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 08-9, Milestone Method of Revenue Recognition (“EITF 08-9”).  EITF 08-9 provides guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments are related to uncertain future events.  Under the Consensus, entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance measures during the period in which the milestones are achieved, provided certain criteria are met.  The scope of this Issue is limited to transactions involving research or development.  EITF 08-9 is effective for interim and annual periods beginning on or after June 15, 2010 with early adoption permitted.  The impact of this EITF is not expected to be material to the consolidated financial statements of the Company.
 
 
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, four licensees for international activities, and our sales force for the domestic sale of Altrazeal™.

Revenues per geographic area for the three months ended March 31 are summarized as follows:

Revenues
 
2010
   
%
   
2009
   
%
 
  Domestic
  $ 167,031       71 %   $ 53,807       32 %
  International
    68,199       29 %     114,922       68 %
  Total
  $ 235,230       100 %   $ 168,729       100 %

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

Customers
Product
 
2010
   
2009
 
  Discus Dental, Inc.
  Aphthasol®
    62 %     13 %
  ProStrakan, Ltd.
  Zindaclin®
    19 %     34 %
  Hoffmann-LaRoche
  OraDisc™
    *       19 %
  Meldex International
  OraDisc™ B
    *       14 %
  Total
      81 %     80 %
                   
  * Sales from these customers were less than 10% of total sales for the period reported.
 


NOTE 5.                      INVENTORY

As of March 31, 2010, our inventory was comprised of raw materials, manufacturing costs incurred in the production of Altrazeal™, and Altrazeal™ finished goods.  Inventory consisted of the following at March 31, 2010 and December 31, 2009:

Inventory
 
March 31, 2010
   
December 31, 2009
 
  Raw materials
  $ 77,761     $ 112,002  
  Work-in-progress
    372,390       375,228  
  Finished goods
    499,996       521,768  
  Total
  $ 950,147     $ 1,008,998  


NOTE 6.                      PROPERTY, EQUIPMENT and LEASHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, net, consisted of the following at March 31, 2010 and December 31, 2009:

Property, equipment and leasehold improvements
 
March 31, 2010
   
December 31, 2009
 
  Laboratory equipment
  $ 424,888     $ 424,888  
  Manufacturing equipment
    1,483,223       1,483,223  
  Computers, office equipment, and furniture
    140,360       140,360  
  Computer software
    4,108       4,108  
  Leasehold improvements
    95,841       95,841  
      2,148,420       2,148,420  
  Less: accumulated depreciation and amortization
    ( 566,853 )     ( 516,863 )
  Property, equipment and leasehold improvements, net
  $ 1,581,567     $ 1,631,557  

Depreciation expense on property, equipment and leasehold improvements was $49,990 and $32,571 for the three months ended March 31, 2010 and 2009, respectively.


NOTE 7.                      INTANGIBLE ASSETS

Intangible assets are comprised of patents acquired in October, 2005.  Intangible assets, net consisted of the following at March 31, 2010 and December 31, 2009:

Intangible assets
 
March 31, 2010
   
December 31, 2009
 
  Patent - Zindaclin®
  $ 3,012,367     $ 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  
      12,638,305       13,354,938  
  Less: accumulated amortization
    ( 4,701,675 )     ( 4,455,159 )
  Less: impairment charge
    ---       ( 716,633 )
  Intangible assets, net
  $ 7,936,630     $ 8,183,146  
 
 
Amortization expense for intangible assets was $246,516 and $266,267 for the three months ended March 31, 2010 and 2009, respectively.  The future aggregate amortization expense for intangible assets, remaining as of March 31, 2010, is as follows:

Calendar Years
 
Future Amortization
Expense
 
  2010 (Nine months)
  $ 753,234  
  2011
    949,796  
  2012
    657,608  
  2013
    655,812  
  2014
    655,812  
  2015 & Beyond
    4,264,368  
  Total
  $ 7,936,630  


 
NOTE 8.                      ACCRUED LIABILITIES

Accrued liabilities consisted of the following at March 31, 2010 and December 31, 2009:

Accrued Liabilities
 
March 31, 2010
   
December 31, 2009
 
  Accrued taxes – payroll
  $ 106,299     $ 106,299  
  Accrued compensation/benefits
    70,399       56,837  
  Accrued insurance payable
    ---       52,295  
  Product rebates/returns
    149       ---  
  Other
    6,063       ---  
  Total accrued liabilities
  $ 182,910     $ 215,431  

 
 
NOTE 9.                      EQUITY TRANSACTIONS

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 $860,000, 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 Industry Regulatory Authority, Inc..

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.
 

 


NOTE 10.                      STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2010, the Company had 81,946,657 shares of common stock issued and outstanding.  The Company issued 5,132,771 shares of common stock during the three months ended March 31, 2010 which consisted of 132,771 shares of common stock for the vesting of certain restricted stock awards and 5,000,000 shares of common stock in the February Offering described in Note 9 above.

Warrants

The following table summarizes the warrants outstanding and the number of shares of common stock subject to exercise as of March 31, 2010 and the changes therein during the three months then ended:

   
Number of Shares of Common Stock Subject to Exercise
   
Weighted – Average
Exercise Price
 
Balance as of December 31, 2009
    8,687,956     $ 0.48  
Warrants issued
    250,000       0.25  
Warrants exercised
    ---       ---  
Warrants cancelled
    ---       ---  
Balance as of March 31, 2010
    8,937,956     $ 0.47  


Of the warrant shares subject to exercise as of March 31, 2010, 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
    785,723  
  May 15, 2015
    5,357,233  
  Total
    8,937,956  




NOTE 11.                      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 March 31, 2010 and December 31, 2009:

   
March 31, 2010
   
December 31, 2009
 
Antidilutive warrants to purchase common stock
    8,937,956       8,687,956  
Antidilutive options to purchase common stock
    3,226,000       3,306,000  
Restricted vesting common stock
    273,111       405,882  
  Total
    12,437,067       12,399,838  


 
- 10 -



NOTE 12.                      SHARE BASED COMPENSATION

The Company’s share-based compensation plan, the 2006 Equity Incentive Plan (“Incentive Plan”), is administered by the compensation committee of the Board of Directors, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

We account for share-based compensation under ASC Topic 718, Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants, and directors based on estimated fair values of the award on the grant date.  We use the Black-Scholes option-pricing model to estimate the fair value of share-based awards with the following weighted average assumptions for the three months ended March 31:

   
2010
   
2009
 
Incentive Stock Options
           
Expected volatility  (1)
    85.0 %     ---  
Risk-free interest rate %  (2)
    2.43 %     ---  
Expected term (in years)
    6.0       ---  
Dividend yield  (3)
    0.0 %     ---  
Forfeiture rate
    0.0 %     ---  
                 
Nonstatutory Stock Options
               
Expected volatility  (1)
    ---       73.7 %
Risk-free interest rate %  (2)
    ---       1.79 %
Expected term (in years)
    ---       3.0  
Dividend yield  (3)
    ---       0.0 %
Forfeiture rate
    ---       0.0 %

(1)
Expected volatility assumption was based upon a combination of historical stock price volatility measured on a daily basis and an estimate of expected future stock price volatility
(2)
Risk-free interest rate assumption is based upon U.S. Treasury bond interest rates appropriate for the term of the stock options.
(3)
The Company does not currently intend to pay cash dividends, thus has assumed a 0% dividend yield.


 
- 11 -




Our Board of Directors granted the following incentive stock option awards to executives or employees and nonstatutory stock option awards to directors or non-employees for the three months ended March 31:

   
2010
   
2009
 
Incentive Stock Options
           
Quantity
    20,000       ---  
Weighted average fair value per share
  $ 0.14       ---  
Fair value
  $ 2,749       ---  
                 
Nonstatutory Stock Options
               
Quantity
    ---       75,000  
Weighted average fair value per share
    ---     $ 0.14  
Fair value
    ---     $ 10,672  


Stock Options (Incentive and Nonstatutory)

The following table summarizes share-based compensation related to stock options for the three months ended March 31:

   
2010
   
2009
 
Research and development
  $ 23,475     $ 35,690  
Selling, general and administrative
    109,583       594,141  
  Total share-based compensation expense
  $ 133,058     $ 629,831  

At March 31, 2010, the balance of unearned share-based compensation to be expensed in future periods related to unvested stock option awards, as adjusted for expected forfeitures, is approximately $799,349.  The period over which the unearned share-based compensation is expected to be recognized is approximately three years.

The following table summarizes the stock options outstanding and the number of shares of common stock subject to exercise as of March 31, 2010 and the changes therein during the three months then ended:

   
Stock Options
   
Weighted Average Exercise Price per Share
 
Outstanding as of December 31, 2009
    3,306,000     $ 2.34  
Granted
    20,000       0.19  
Forfeited/cancelled
    (100,000 )     2.84  
Exercised
    ---       ---  
Outstanding as of March 31, 2010
    3,226,000     $ 2.31  


 
- 12 -




The following table presents the stock option grants outstanding and exercisable as of March 31, 2010:

Options Outstanding
   
Options Exercisable
 
Stock Options Outstanding
   
Weighted Average Exercise Price per Share
   
Weighted Average Remaining Contractual Life in Years
   
Stock Options Exercisable
   
Weighted Average Exercise Price per Share
 
  960,000     $ 0.88       7.3       766,457     $ 0.88  
  565,000       1.58       7.3       565,000       1.58  
  931,000       2.43       4.7       760,897       2.46  
  770,000       4.48       7.4       545,000       4.47  
  3,226,000     $ 2.31       6.6       2,637,354     $ 2.23  


Restricted Stock Awards

Restricted stock awards, which typically vest over a period of two to five years, are issued to certain key employees and are subject to forfeiture until the end of an established restriction period.  We utilize the market price on the date of grant as the fair market value of restricted stock awards and expense the fair value on a straight-line basis over the vesting period.

The following table summarizes share-based compensation related to restricted stock awards for the three months ended March 31:

   
2010
   
2009
 
Research and development
  $ 7,609     $ 6,111  
General and administrative
    13,365       165,172  
  Total share-based compensation expense
  $ 20,974     $ 171,283  

At March 31, 2010, the balance of unearned share-based compensation to be expensed in future periods related to restricted stock awards, as adjusted for expected forfeitures, is approximately $112,919.  The period over which the unearned share-based compensation related to restricted stock awards is expected to be recognized is approximately three years.

The following table summarizes the non-vested restricted stock awards outstanding and the number of shares of common stock subject to potential issue as of March 31, 2010 and the changes therein during the three months then ended:

   
Restricted stock
   
Weighted Average Grant Date Fair Value
 
Outstanding as of December 31, 2009
    405,882     $ 0.51  
Shares granted
    ---       ---  
Shares forfeited/cancelled
    ---       ---  
Shares exercised/issued
    (132,771 )     0.48  
Outstanding as of March 31, 2010
    273,111     $ 0.53  


 
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Summary of Plans

2006 Equity Incentive Plan

In March 2006 our board of directors (“Board”) adopted and our stockholders approved our 2006 Equity Incentive Plan (“Incentive Plan”), which initially provided for the issuance of up to 2 million shares of our Common Stock pursuant to stock option and other equity awards.  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 March 31, 2010, we had granted options to purchase 4,230,000 shares of Common Stock since the inception of the Incentive Plan, of which 3,226,000 were outstanding at a weighted average exercise price of $2.31 per share and we had granted awards for 1,029,242 shares of restricted stock since the inception of the Incentive Plan, of which 273,111 were outstanding.  As of March 31, 2010, there were 4,723,180 shares that remained available for future grant under our Incentive Plan.


NOTE 13.                      INCOME TAXES

There was no current federal tax provision or benefit recorded for any period since inception, nor were there any recorded deferred income tax assets, as such amounts were completely offset by valuation allowances.


NOTE 14.                      COMMITMENTS AND CONTINGENCIES

Operating Lease

On January 31, 2006 we entered into a lease agreement for office and laboratory space in Addison, Texas.  The lease, which commenced on April 1, 2006 and continues until April 1, 2013, currently requires a monthly lease obligation of $9,228 per month, which is inclusive of monthly operating expenses.  The future minimum lease payments are as follows as of March 31, 2010:

Calendar Years
 
Future Lease Expense
 
  2010(Nine months)
  $ 83,056  
  2011
    114,755  
  2012
    116,094  
  2013
    29,024  
  Total
  $ 342,929  

Rent expense for our operating lease amounted to $33,478 and $27,415 for the three months ended March 31, 2010 and 2009, respectively.


 
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Indemnification

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

In accordance with our restated articles of incorporation and our amended and restated bylaws, we have indemnification obligations to our officers and directors for certain events or occurrences, subject to certain limits, while they are serving at our request in their respective capacities. There have been no claims to date and we have a director and officer insurance policy that enables us to recover a portion of any amounts paid for future potential claims. We have also entered into contractual indemnification agreements with each of our officers and directors.

Employment Agreements

As of March 31, 2010 the Company is party to employment agreements with its officers, which include Renaat Van den Hooff, President and Chief Executive Officer and Terrance K. Wallberg, Vice President and Chief Financial Officer, as well as other key executives including Daniel G. Moro, Vice President – Polymer Drug Delivery and John V. St. John, Ph.D., Vice President - Research and Development.  The employment agreement with Mr. Van den Hooff has an initial term of two years and includes an automatic one-year term renewal for each year thereafter.  The employment agreements with Messrs. Wallberg, Moro, and St. John each have a term of one year and include an automatic one-year term renewal for each year thereafter.  Each employment agreement provides for a base salary, bonus, stock options, stock grants, and eligibility for Company provided benefit programs.  Under certain circumstances, the employment agreements provide for certain severance benefits in the event of termination or a change in control.  The employment agreements also contain non-solicitation, confidentiality and non-competition covenants, and a requirement for the assignment of certain invention and intellectual property rights to the Company.

Separation Agreement

As of March 31, 2010 the Company is party to a separation agreement with Kerry P. Gray, the Company’s former Chief Executive Officer, whereby the Company provides or has provided, as applicable, certain benefits to Mr. Gray, including: (i) payments totaling $400,000 during the initial 12 month period following March 9, 2009; (ii) commencing March 1, 2010 and continuing for a period of forty-eight (48) months, the Company has and will continue to pay to Mr. Gray a payment of $12,500 per month; (iii) full acceleration of all vesting schedules for all outstanding Company stock options and shares of restricted stock of the Company held by Mr. Gray, with all such Company stock options remaining exercisable by Mr. Gray until March 1, 2012, provided that Mr. Gray has forfeited 300,000 stock options previously held by him; and (iv) for a period of twenty-four (24) months following March 9, 2009 the Company is required to maintain and provide coverage under Mr. Gray’s existing health coverage plan.  Certain of such payments are secured by a security interest in favor of Mr. Gray in our intellectual property relating to Zindaclin®.  The separation agreement also provides that Mr. Gray was to serve as a consultant to the Company for up to two full days per month through August 31, 2009.  Mr. Gray was not paid for the performance of such consulting services.  The separation agreement contains a mutual release of claims, certain stock lock-up provisions, and other standard provisions.

 
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Milestone Payments

We were subject to paying Access Pharmaceuticals, Inc. (“Access”) for certain milestones based on our achievement of certain annual net sales, cumulative net sales, and/or our having reached certain defined technology milestones including licensing agreements and advancing products to clinical development.  As of March 31, 2010, the future milestone obligations that we are subject to paying Access, if the milestones related thereto are achieved, total $4,750,000.  Such milestones are based on total annual sales of 20 and 40 million dollars of certain products, annual sales of 20 million dollars of any one certain product, and cumulative sales of such products of 50 and 100 million dollars.

On March 7, 2008, the Company terminated the license agreement with ProStrakan Ltd. for Amlexanox-related products in the United Kingdom and Ireland.  As part of the termination, the Company agreed to pay ProStrakan Ltd. a royalty of 30% on any future payments received by the Company from a new licensee in the United Kingdom and Ireland territories, up to a maximum of $1,400,000.  On November 17, 2008, the Company conveyed the Amlexanox-related product rights to the United Kingdom and Ireland territories to MEDA AB.


NOTE 15.                      LEGAL PROCEEDINGS

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.


NOTE 16.                      SUBSEQUENT EVENTS

We have evaluated, for potential recognition and disclosure, subsequent events that have occurred after the balance sheet date but before the financial statements were available to be issued, which the Company considers to be the date of filing with the Securities and Exchange Commission.






 
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You should read the following discussion and analysis together with all financial and non-financial information appearing elsewhere in this report and with our consolidated financial statements and related notes included in our 2009 Annual Report on Form 10-K, referred to as our 2009 Form 10-K, which has been previously filed with the Securities and Exchange Commission. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties, including the statement that our cash and cash equivalents are sufficient to fund our operations through the third quarter of 2011.  Our actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other risks discussed in our 2009 Form 10-K under “Risks Associated with our Business”.

Business 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.

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.



 


 
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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 three months ended March 31, 2010 and 2009

Total Revenues

Revenues were $235,230 for the three months ended March 31, 2010, as compared to revenues of $168,729 for the three months ended March 31, 2009, and were comprised of licensing fees of approximately $23,000 for two OraDisc™ licensing agreements, $46,000 of foreign royalties from the sale of Zindaclin®, $7,000 of domestic royalties from the sale of Aphthasol® by our distributor, and product sales of approximately $138,000 for Aphthasol® and $21,000 for Altrazeal™.

The first quarter 2010 revenues represent an overall increase of approximately $66,000 versus the comparative first quarter 2009 revenues, due primarily to an increase of $138,000 in Aphthasol® product sales as we did not sell any Aphthasol® finished product to our domestic distributor during the first quarter of 2009.  This increase was partially offset by decreases in Zindaclin® related licensing and royalty fees of $13,000, Aphthasol® domestic royalties of $15,000, sponsored research of $32,000, and Altrazeal™ product sales of $12,000.

Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2010 was $130,683 and consisted of $126,622 in costs associated with Aphthasol® and $4,061 in costs associated with Altrazeal™.  Cost of goods sold for the three months ended March 31, 2009 was $6,077 and was comprised entirely of costs associated with Altrazeal™.

 
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Research and Development

Research and development expenses totaled $285,784 for the three months ended March 31, 2010, including $31,084 in share-based compensation, compared to $775,418 for the three months ended March 31, 2009, which included $41,801 in share-based compensation.  The decrease of approximately $490,000 in research and development expenses was primarily due to the Company’s restructured business plan continuing in 2010 which contributed to decreases in direct research costs of $148,000, scientific personnel costs of $210,000, clinical testing expenses for our wound care technologies of $58,000, regulatory consulting expenses of $56,000, and regulatory fees of $21,000.

The direct research and development expenses for the three months ended March 31, 2010 and 2009 were as follows:

   
Three Months Ended March 31,
 
Technology
 
2010
   
2009
 
  Wound care & nanoparticle
  $ 7,500     $ 31,383  
  OraDisc™
    1,188       153,725  
  Aphthasol® & other technologies
    30,661       1,924  
  Total
  $ 39,349     $ 187,032  


Selling, General and Administrative

Selling, general and administrative expenses totaled $816,888 for the three months ended March 31, 2010, including $122,948 in share-based compensation, compared to $2,224,619 for the three months ended March 31, 2009, which included $759,313 in share-based compensation.

The decrease of approximately $1,408,000 in selling, general and administrative expenses was primarily due to the Company’s restructured business plan continuing in 2010 which contributed to reduced costs associated with our sales and marketing efforts of approximately $636,000 due to lower head count and marketing expenses, a decrease of $635,000 in administrative compensation, lower consulting fees of $43,000, lower legal fees of $70,000, and decreased legal fees related to our patents of $56,000.  These expense decreases were partially offset by an increase in director fees of $16,000 and higher accounting fees of $14,000 related to the audit fees for 2009.

The net decrease in administrative compensation includes approximately $598,000 of share-based compensation expense that occurred in the first quarter of 2010 after giving effect to certain vesting accelerations of stock options and restricted stock, which were partially offset by certain stock option forfeitures and by savings of $77,000 relating to benefit forfeitures pursuant to the aforementioned separation agreement with our former chief executive officer.

 
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Amortization of Intangible Assets

Amortization of intangible assets expense totaled $246,516 for the three months ended March 31, 2010 as compared to $266,267 for the three months ended March 31, 2009.  The expense for each period consists primarily of amortization associated with our acquired patents.  There were no additional purchases of patents during the three months ended March 31, 2010 and 2009.

Depreciation

Depreciation expense totaled $49,990 for the three months ended March 31, 2010 as compared to $32,571 for the three months ended March 31, 2009.  The increase of approximately $17,000 is attributable to our purchase of additional equipment during 2009.

Interest and Miscellaneous Income

Interest and miscellaneous income totaled $121 for the three months ended March 31, 2010 as compared to $14,554 for the three months ended March 31, 2009.  The decrease of approximately $14,000 is attributable to a decrease in interest income due to lower cash balances and interest yields in 2010.

Interest Expense

Interest expense totaled $7,988 for the three months ended March 31, 2010 and consisted of financing costs for our insurance policies.  There was no interest expense for the three months ended March 31, 2009.
 
 
 
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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through the public and 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, funding for operations. Our principal source of liquidity is cash and cash equivalents.  As of March 31, 2010 our cash and cash equivalents were $2,202,801 which is an increase of $268,624 as compared to our cash and cash equivalents at December 31, 2009 of $1,934,177.  Our working capital (current assets less current liabilities) was $2,599,316 at March 31, 2010 as compared to our working capital at December 31, 2009 of $2,615,079.

Consolidated Cash Flow Data
   
Three Months Ended March 31,
 
Net Cash Provided by (Used in)
 
2010
   
2009
 
  Operating activities
  $ (589,356 )   $ (2,414,035 )
  Investing activities
    ---       (14,177 )
  Financing activities
    857,980       ---  
  Net (Decrease) Increase in cash and cash equivalents
  $ 268,624     $ (2,428,212 )
 
 
Operating Activities

For the three months ended March 31, 2010, net cash used in operating activities was $589,356.  The principal components of net cash used for the three months ended March 31, 2010 were our net loss of approximately $1,302,000, a decrease of $23,000 in deferred revenue due to amortization, and a decrease of $32,000 in accrued liabilities due primarily to the final installment payments on our insurance premium financing.  Our net loss for the three months ended March 31, 2010 included substantial non-cash charges of $451,000 in the form of share-based compensation, amortization of patents, and depreciation.  The aforementioned net cash used for the three months ended March 31, 2010 was partially offset by an increase in accounts payable of $167,000 due to timing of vendor payments, a decrease in prepaid expenses of $66,000 due to expense amortization, a decrease in inventory of $59,000 due to product sales, and a decrease in accounts receivable of $23,000 due to collection of a milestone due from ProStrakan.

For the three months ended March 31, 2009, net cash used in operating activities was $2,414,035.  The principal components of net cash used for the three months ended March 31, 2009 were our net loss of approximately $3,121,000, an increase in accounts receivable of $37,000 due an increase in Altrazeal™ sales, a decrease of $21,000 in our royalty advance for Aphthasol® due to sales by our distributor, a decrease of $324,000 in accounts payable due to timing, a decrease of $47,000 in deferred revenue due to amortization, and a decrease of $102,000 in accrued liabilities primarily due to a $77,000 adjustment associated with the separation agreement with our former chief executive officer.  Our net loss for the three months ended March 31, 2009 included substantial non-cash charges in the form of share-based compensation, amortization of patents, and depreciation.  These non-cash charges totaled approximately $1,115,000, which included approximately $598,000 of share-based compensation expense after giving effect to certain accelerations of vesting of stock options and restricted stock which were partially offset by certain stock option forfeitures pursuant to the separation agreement with our former chief executive officer. The aforementioned net cash used for the three months ended March 31, 2009 was partially offset by a decrease in prepaid expenses of $117,000 due to expense amortization and a decrease in inventory of $6,000.


 
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Investing Activities

For the three months ended March 31, 2010, there were no investing activities.  For the first quarter of 2009, we purchased $14,177 of manufacturing equipment for Altrazeal™.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2010 was $857,980 from the February Offering.  For the first quarter of 2009, there were no financing activities.

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.  These conservation efforts continue to be in effect as part of the Company’s strategic plan for 2010.

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 $860,000, 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 fundraising using the Company’s effective shelf registration statement on Form S-3 or through the sale of non-core assets.

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.
 
 
 
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As of March 31, 2010, we had cash and cash equivalents of approximately $2,200,000.  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, if any, 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 approved products 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 March 31, 2010, 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
  $ 342,928     $ 110,740     $ 232,188     $ ---     $ ---  
  Separation agreement
    587,500       150,000       300,000       137,500       ---  
  Total contractual cash obligations
  $ 930,428     $ 260,740     $ 532,188     $ 137,500     $ ---  


Off-Balance Sheet Arrangements

As of March 31, 2010, 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.  However, there can be no assurance that possible future inflation would not impact our operations.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim 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.  Our critical accounting policies are summarized in our Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on March 24, 2010.  We had no significant changes in our critical accounting policies since our last annual report.

 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (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 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 include, among other things, statements regarding the Company’s expected cash and cash equivalents and working capital being sufficient to fund our operations through the third quarter of 2011, and other statements, including the Company’s goals, plans and projections regarding its financial position, 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, 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 its 2009 Annual Report on Form 10-K, particularly under “Risk Associated with our Business” 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.

 
- 25 -


 


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.  Currently, we utilize Bank of America and Bank of America Investment Services, Inc. as our banking institutions.  At March 31, 2010 and December 31, 2009 our cash and cash equivalents totaled $2,202,801 and $1,934,177, respectively.  However, because deposits are maintained at these two financial institutions, we do not believe that there is a significant risk of loss of uninsured amounts.  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 March 31, 2010 and at December 31, 2009.  As of March 31, 2010, two customers exceeded the 5% threshold, one customer with 75% and the other customer with 20%.  Three customers exceeded the 5% threshold at December 31, 2009, each customer with 67%, 11%, and 10%, respectively.  We believe that the customer accounts are fully collectible as of March 31, 2010.

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.


 
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Evaluation of Disclosure Controls and Procedures.

Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-14(c) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report, concluded that the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within the Company, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal controls.

There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to material affect, our internal controls over financial reporting.





The Company was served in April 2009 with a compliant 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.



There have been no material changes in our risk factors from those disclosed in our 2009 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 24, 2010.



None.



None.
 
 
 
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None.



None.



Exhibit Number
Description
   
   
   
   
     
 
*
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities and Exchange Act of 1934.
     


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
ULURU Inc.
   
 Date:  May 14, 2010
 
By:
 /s/ Renaat Van den Hooff
 
   
Renaat Van den Hooff
   
Chief Executive Officer and President
   
(Principal Executive Officer)
   
   
 Date:  May 14, 2010
 
By:
 /s/ Terrance K. Wallberg
 
   
Terrance K. Wallberg
   
Chief Financial Officer and Vice President
   
(Principal Financial and Accounting Officer)
 

 

 
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