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EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - ULURU Inc.ex_32-2.htm
EX-31.2 - CERTIFICATION OF PRINCIPLE ACCOUNTING OFFICER - ULURU Inc.ex_31-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - ULURU Inc.ex_32-1.htm
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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, 2012

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, 2012, there were 8,086,398 shares of the registrant’s Common Stock, $0.001 par value per share, and 65 shares of Series A Preferred Stock, $0.001 par value per share, issued and outstanding.

 
 

 



INDEX TO FORM 10-Q

For the Three Months Ended MARCH 31, 2012

   
Page
 
     
     
 
 
 
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
     
     
     
     





Financial Statements.


CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 258,266     $ 46,620  
Accounts receivable, net
    35,372       45,421  
Other receivable, current portion
    ---       246,410  
Inventory
    776,735       799,483  
Prepaid expenses and deferred charges
    242,365       211,522  
Total Current Assets
    1,312,738       1,349,456  
                 
Property, Equipment and Leasehold Improvements, net
    997,198       1,072,460  
                 
Other Assets
               
Intangible assets, net
    4,503,972       4,622,435  
Deposits
    18,069       18,069  
Total Other Assets
    4,522,041       4,640,504  
                 
TOTAL ASSETS
  $ 6,831,977     $ 7,062,420  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities
               
Accounts payable
  $ 1,627,713     $ 1,640,211  
Accrued liabilities
    315,927       376,542  
Accrued interest
    19,588       13,053  
Deferred revenue, current portion
    43,757       24,061  
Total Current Liabilities
    2,006,985       2,053,867  
                 
Long Term Liabilities
               
Convertible notes payable, net of unamortized debt discount
    238,033       234,882  
Deferred revenue, net of current portion
    869,627       672,282  
Total Long Term Liabilities
    1,107,660       907,164  
                 
TOTAL LIABILITIES
    3,114,645       2,961,031  
                 
COMMITMENTS AND CONTINGENCIES
    ---       ---  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock - $0.001 par value; 20,000 shares authorized;
               
Preferred Stock Series A, 1,000 shares designated; 65 and 25 shares issued and outstanding, aggregate liquidation value of $665,113 and $254,387, at March 31, 2012 and December 31, 2011, respectively
    ---       ---  
                 
Common Stock - $0.001 par value; 200,000,000 shares authorized;
               
8,086,398 and 7,269,063 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
    8,086       7,269  
Additional paid-in capital
    50,469,344       49,750,792  
Promissory notes receivable and accrued interest for common stock issuance
    (974,336 )     (725,045 )
Accumulated  (deficit)
    (45,785,762 )     (44,931,627 )
TOTAL STOCKHOLDERS’ EQUITY
    3,717,332       4,101,389  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 6,831,977     $ 7,062,420  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


   
Three Months Ended March 31,
 
   
2012
   
2011
 
REVENUES
           
License fees
  $ 7,959     $ 6,049  
Royalty income
    16,185       13,387  
Product sales, net
    35,861       55,735  
Total Revenues
    60,005       75,171  
                 
COSTS AND EXPENSES
               
Cost of goods sold
    16,734       16,262  
Research and development
    192,960       273,798  
Selling, general and administrative
    476,299       659,093  
Amortization of intangible assets
    118,463       201,968  
Depreciation
    75,261       76,858  
Total Costs and Expenses
    879,717       1,227,979  
                 
OPERATING (LOSS)
    (819,712 )     (1,152,808 )
                 
Other Income (Expense)
               
Interest and miscellaneous income
    1,654       4,036  
Interest expense
    (25,351 )     (12,851 )
(LOSS) Before Income Taxes
    (843,409 )     (1,161,623 )
                 
Income taxes
    ---       ---  
NET (LOSS)
  $ (843,409 )   $ (1,161,623 )
                 
Less preferred stock dividends
    (10,726 )     ---  
NET (LOSS) Allocable to Common Stockholders
  $ (854,135 )   $ (1,161,623 )
                 
                 
                 
Basic and diluted net (loss) per common share
  $ (0.11 )   $ (0.20 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    7,962,421       5,800,595  
                 





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended March 31,
 
   
2012
   
2011
 
OPERATING ACTIVITIES :
           
Net loss
  $ (843,409 )   $ (1,161,623 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
                 
Amortization of intangible assets
    118,463       201,968  
Depreciation
    75,261       76,858  
Share-based compensation for stock and options issued to employees
    12,551       29,343  
Share-based compensation for options issued to non-employees
    12,112       16,018  
Amortization of debt discount on convertible note
    3,151       ---  
Common stock issued for services
    130,000       15,000  
                 
Change in operating assets and liabilities:
               
Accounts receivable
    10,049       37,932  
Other receivable
    26,410       (3,605 )
Inventory
    22,748       (13,942 )
Prepaid expenses and deferred charges
    (30,843 )     60,974  
Accounts payable
    (12,498 )     68,951  
Accrued liabilities
    (60,614 )     (46,185 )
Accrued interest
    6,535       ---  
Deferred revenue
    217,041       (6,049 )
Total
    530,366       437,263  
                 
Net Cash Used in Operating Activities
    (313,043 )     (724,360 )
                 
INVESTING ACTIVITIES :
               
Proceeds from sale of intangible asset
    220,000       ---  
Net Cash Provided by Investing Activities
    220,000       ---  
                 
FINANCING ACTIVITIES :
               
Proceeds from sale of common stock and warrants, net
    ---       411,990  
Proceeds from sale of preferred stock, net
    275,761       ---  
Offering cost adjustment – preferred stock sale in 2011
    28,928       ---  
Net Cash Provided by Financing Activities
    304,689       411,990  
                 
Net Increase (Decrease) in Cash
    211,646       (312,370 )
                 
Cash,  beginning of period
    46,620       641,441  
Cash,  end of period
  $ 258,266     $ 329,071  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURE:
               
Cash paid for interest
  $ 1,095     $ 757  
                 
Non-cash investing and financing activities:
               
Issuance of 491,636 shares of common stock for promissory note
  $ 245,818     $ ---  
                 
The accompanying notes are an integral part of these condensed 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 Nanoflex® 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, 2012 and the results of its operations for the three months ended March 31, 2012 and 2011 and cash flows for the three months ended March 31, 2012 and 2011 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on March 30, 2012, including the risk factors set forth therein.



Liquidity and Going Concern

The report of our independent registered public accounting firm for the fiscal year ended December 31, 2011, contained an explanatory paragraph to reflect its significant doubt about our ability to continue as a going concern as a result of our history of losses and our liquidity position, as discussed herein and in this Form 10-Q.  Based on our existing liquidity, the expected level of operating expenses, projected sales of our existing products combined with other revenues and proceeds from the divestiture of non-core assets, we believe that we will be able to meet our working capital and capital expenditure requirements through the second quarter of 2012.  However, we cannot be sure that our anticipated revenue growth will be realized or that we will generate significant positive cash flow from operations.  Moreover, we may not be able to raise sufficient additional capital on acceptable returns, or at all, to continue operations and may not be able to execute any strategic transactions.  Therefore, we are unable to assert that our financial position is sufficient to fund operations beyond the second quarter of 2012, and as a result, there is substantial doubt about our ability to continue as a going concern beyond the second quarter of 2012.

Explanatory Note Regarding Share Amounts:

All share amounts and per share prices in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the effect of our reverse stock split, on a 15 for 1 basis, effective June 29, 2011, unless otherwise indicated.  The exercise price for all stock options and warrants and the conversion price for convertible debt in the accompanying condensed consolidated financial statements have been adjusted to reflect the reverse stock split by multiplying the original exercise or conversion price by fifteen.


NOTE 2.
SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three ended March 31, 2012 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, 2011, as filed with the Securities and Exchange Commission on March 30, 2012.




NOTE 3.
THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 updated guidance on the periodic testing of goodwill for impairment. This guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for fiscal years beginning after December 15, 2011, however, early adoption is permitted in certain circumstances.  We adopted the provisions of ASU 2011-08 in the first quarter of 2012.  The adoption of this update does not materially impact our financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years beginning after December 15, 2011.  We adopted the provisions of ASU 2011-05 in the first quarter of 2012.  The adoption of this update does not materially impact our financial statements.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 generally provides a uniform framework for fair value measurements and related disclosures between U.S. generally accepted accounting principles and International Financial Reporting Standards. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will be effective for interim and annual periods beginning on or after December 15, 2011. We adopted the provisions of ASU 2011-04 in the first quarter of 2012.  The adoption of this update does not materially impact our financial statements.

There are no other new accounting pronouncements adopted or enacted during the three months ended March 31, 2012 that had, or are expected to have, a material impact on our financial statements.







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 sale of Altrazeal®.

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

Revenues
 
2012
   
%
   
2011
   
%
 
  Domestic
  $ 52,046       87 %   $ 69,122       92 %
  International
    7,959       13 %     6,049       8 %
  Total
  $ 60,005       100 %   $ 75,171       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
 
2012
   
2011
 
  Customer A
Aphthasol®
    27 %     18 %
  Customer B
Altrazeal®
    16 %     *  
  Customer C
Altrazeal®
    11 %     *  
  Total
      54 %     18 %
                   
  * Sales from this customer were less than 10% of total sales for the period reported.
 


NOTE 5.
OTHER RECEIVABLE

On June 25, 2010, we entered into an acquisition and license agreement (the “Agreement”) with Strakan International Limited and Zindaclin Limited, a subsidiary of Crawford Healthcare Limited, a pharmaceutical company based in England.  Under the terms of the Agreement, Zindaclin Limited will pay up to $5.1 million for the exclusive product rights to Zindaclin®, a zinc clindamycin for the treatment of acne, which consideration will be shared equally by Strakan International Limited and us.  Guaranteed payments of $1,050,000 were scheduled to be received by us, of which $550,000 occurred in 2010, $250,000 occurred in 2011, and $250,000 was to occur in June 2012.  On March 22, 2012, we agreed to accept $220,000 for the early remittance of the final guaranteed payment, to be received by March 29, 2012.





NOTE 6.
INVENTORY

As of March 31, 2012, our inventory was comprised of Altrazeal® finished goods, manufacturing costs incurred in the production of Altrazeal® and Aphthasol®, and raw materials.  Inventories are stated at the lower of cost (first in, first out method) or market.  Appropriate consideration is given to deterioration, obsolescence, and other factors in evaluating net realizable value.  Inventory consisted of the following at March 31, 2012 and December 31, 2011:

Inventory
 
March 31, 2012
   
December 31, 2011
 
  Finished goods
  $ 375,886     $ 398,634  
  Work-in-progress
    367,779       367,779  
  Raw materials
    33,070       33,070  
  Total
  $ 776,735     $ 799,483  


NOTE 7.
PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, net, consisted of the following at March 31, 2012 and December 31, 2011:

Property, equipment and leasehold improvements
 
March 31, 2012
   
December 31, 2011
 
  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
    ( 1,151,222 )     (1,075,960 )
  Property, equipment and leasehold improvements, net
  $ 997,198     $ 1,072,460  

Depreciation expense on property, equipment and leasehold improvements was $75,261 and $76,858 for the three months ended March 31, 2012 and 2011, respectively.


 
- 10 -




NOTE 8.
INTANGIBLE ASSETS

Intangible assets are comprised of patents acquired in October, 2005.  Intangible assets, net consisted of the following at March 31, 2012 and December 31, 2011:

Intangible assets
 
March 31, 2012
   
December 31, 2011
 
  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  
      9,625,938       9,625,938  
  Less: accumulated amortization
    ( 5,121,966 )     (5,003,503 )
  Intangible assets, net
  $ 4,503,972     $ 4,622,435  

Amortization expense for intangible assets was $118,463 and $201,968 for the three months ended March 31, 2012 and 2011, respectively.

The future aggregate amortization expense for intangible assets, remaining as of March 31, 2012, is as follows:
Calendar Years
 
Future Amortization
Expense
 
  2012 (Nine months)
  $ 357,987  
  2013
    475,148  
  2014
    475,148  
  2015
    475,148  
  2016
    476,450  
  2017 & Beyond
    2,244,091  
  Total
  $ 4,503,972  



NOTE 9.
INVESTMENTS IN UNCONSOLIDATED ENTITIES

On January 11, 2012, we executed a shareholders’ agreement for the establishment of Altrazeal Trading Ltd., a single purpose entity to be used for the exclusive marketing of Altrazeal® throughout the European Union, Australia, New Zealand, North Africa, and the Middle East.  We received a non-dilutable 25% ownership interest in Altrazeal Trading Ltd.

We use the equity method of accounting for investments in other companies that are not controlled by us and in which our interest is generally between 20% and 50% of the voting shares or we have significant influence over the entity, or both.

As of March 31, 2012, Altrazeal Trading Ltd. has not begun operations and accordingly the net book value of the investee assets has not been determined and there were no equity method investee gains or losses for the three months then ended.

 
- 11 -




NOTE 10.
ACCRUED LIABILITIES

Accrued liabilities consisted of the following at March 31, 2012 and December 31, 2011:

Accrued Liabilities
 
March 31, 2012
   
December 31, 2011
 
  Accrued taxes – payroll
  $ 106,299     $ 106,299  
  Accrued compensation/benefits
    186,881       184,080  
  Accrued insurance payable
    18,829       78,246  
  Product rebates/returns
    113       3,160  
  Other
    3,805       4,757  
  Total accrued liabilities
  $ 315,927     $ 376,542  


NOTE 11.
CONVERTIBLE DEBT

On June 13, 2011, we completed a $140,000 convertible debt financing with Kerry P. Gray, the Company’s Chairman, President, and Chief Executive Officer (the “June 2011 Debt Offering”).  The convertible note bears interest at the rate of 10% per annum, with annual payments of interest commencing on July 1, 2012.  The full amount of principal and any unpaid interest will be due on June 13, 2014.  The outstanding principal balance of the note may be converted into shares of the Company’s common stock, at the option of the note holder and at any time, at a conversion price of $1.20 per share or 116,667 shares of common stock.  We may force conversion of the convertible note if our common stock trades for a defined period of time at a price greater than $1.80.  The convertible note is secured by the grant of a security interest in the inventory, accounts receivables, and capital equipment held by the Company.  The securities issuable on conversion have not been registered under the Securities Act of 1933 and may not be sold absent registration or an applicable exemption from the registration requirements.  As part of the convertible debt financing, Mr. Gray also received a warrant to purchase up to 35,000 shares of the Company’s common stock.  The warrant has an exercise price of $1.20 per share and is exercisable at any time until June 13, 2016.

On July 28, 2011, we completed a second convertible debt financing for $125,000 with Mr. Gray (the “July 2011 Debt Offering”).  The convertible note bears interest at the rate of 10.0% per annum, with annual payments of interest commencing on July 1, 2012.  The full amount of principal and any unpaid interest will be due on July 28, 2014.  The outstanding principal balance of the note may be converted into shares of the Company’s common stock, at the option of the note holder and at any time, at a conversion price of $1.08 per share or 115,741 shares of common stock.  We may force conversion of the convertible note if our common stock trades for a defined period of time at a price greater than $2.16.  The convertible note is collateralized by the grant of a security interest in the inventory, accounts receivables and capital equipment held by the Company.  As part of the convertible debt financing, Mr. Gray also received a warrant to purchase up to 34,722 shares of the Company’s common stock.  The warrant has an exercise price of $1.08 per share and is exercisable at any time until July 28, 2016.  The securities issuable on conversion have not been registered under the Securities Act of 1933 and may not be sold absent registration or an applicable exemption from the registration requirements.

We account for convertible debt using specific guidelines in accordance with U.S. GAAP.  We allocated the value of the proceeds received to the convertible instrument and to the warrant on a relative fair value basis.  We calculated the fair value of the warrant issued with the convertible instrument using the Black-Scholes valuation method, using the same assumptions used for valuing employee stock options, except the contractual life of the warrant was used. Using the effective interest method, the allocated fair value was recorded as a debt discount and is being amortized over the expected term of the convertible debt to interest expense.

On the date of issuance of the June 2011 convertible note and the July 2011 convertible note, no portion of the proceeds were attributable to a beneficial conversion feature since the conversion price of the June 2011 convertible note and the July 2011 convertible note exceeded the market price of the Company’s common stock.

Information relating to our convertible notes payable is as follows:
                       
As of March 31, 2012
 
Transaction
 
Initial
 Principal
Amount
   
Interest
Rate
 
Maturity
Date
 
Fixed
Conversion
Price
   
Principal
Balance
   
Unamortized
Debt
Discount
   
Carrying
Value
 
  June 2011 Note
  $ 140,000       10.0 %
06/13/2014
  $ 1.20     $ 140,000     $ 9,095     $ 130,905  
  July 2011 Note
    125,000       10.0 %
07/28/2014
  $ 1.08       125,000       17,872       107,128  
  Total
  $ 265,000                       $ 265,000     $ 26,967     $ 238,033  

The amount of interest cost recognized from the two convertible notes outstanding was $6,535 and nil for three months ended March 31, 2012 and 2011, respectively.

 
- 12 -




NOTE 12.
EQUITY TRANSACTIONS

Common Stock Transaction

On September 13, 2011, we entered into a Common Stock Purchase Agreement (the “Common Stock Agreement”) with Ironridge Global BioPharma, a division of Ironridge Global IV, Ltd. (“Ironridge”), under which we delivered four notices to Ironridge exercising our right to require Ironridge to purchase up to $969,000 of our common stock at a price per share equal to $0.50.

During 2011, we presented three notices to Ironridge for the purchase of our common stock, with Ironridge purchasing each tranche of shares of common stock with a promissory note, as follows:

§  
646,364 shares of common stock for $323,182 on September 16, 2011;
§  
300,000 shares of common stock for $150,000 on November 7, 2011; and
§  
500,000 shares of common stock for $250,000 on December 22, 2011.

During 2012, we presented our fourth and final notice to Ironridge for the purchase of our common stock, with Ironridge purchasing such shares of common stock with a promissory note, as follows:

§  
491,636 shares of common stock for $245,818 on January 12, 2012.


Preferred Stock Transaction

On September 13, 2011, we entered into a Preferred Stock Purchase Agreement (the “Series A Agreement”) with Ironridge Global III, LLC, a Delaware limited liability company (“Ironridge Global”), under which Ironridge Global committed to purchase for cash up to $650,000 of the Company’s redeemable, convertible Series A Preferred Stock (the “Series A Stock”) at $10,000 per share of Series A Stock.  Under the terms of the Series A Agreement, on September 20, 2011 we presented Ironridge Global with our initial notice to purchase Series A Stock and Ironridge Global funded the purchase of 15 shares of Series A Stock for cash of $150,000.  On November 8, 2011, we and Ironridge Global entered into a First Amendment to Preferred Stock Purchase Agreement (the “First Amendment”) for the purpose of revising certain terms and conditions contained in the Series A Agreement, to include an updated schedule for the timing and number of shares for certain purchase obligations, the option by us to set the per share price of the Series A Stock below $10,000 subject to certain calculations, and to define certain terms contained therein.  Under the terms of the First Amendment, on November 9, 2011 we presented Ironridge Global with our second notice to purchase Series A Stock and Ironridge Global funded the purchase of 10 shares of Series A Stock shares for cash of $100,000.

During 2012, we presented our third and fourth notice to Ironridge Global to purchase Series A Stock, with Ironridge Global purchasing each tranche of shares of Series A stock for cash, as follows:

§  
25 Series A Stock shares for $148,750 on January 13, 2012; and
§  
15 Series A Stock shares for $141,525 on January 23, 2012.


 
- 13 -




NOTE 13.
STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2012, we had 8,086,398 shares of common stock issued and outstanding.  We issued 817,335 shares of common stock for the three months ended March 31, 2012 comprised of 699 shares of common stock for the vesting of certain restricted stock awards, 325,000 shares of common stock issued for consulting services, and 491,636 shares of common stock for the final drawdown of the Common Stock Purchase Agreement with Ironridge Global BioPharma, a division of Ironridge Global IV, Ltd.

Preferred Stock

As of March 31, 2012, we had 65 shares of Series A preferred stock issued and outstanding.  We issued 40 shares of Series A preferred stock for the three months ended March 31, 2012, with all shares being issued to Ironridge Global III, LLC for the final drawdown of the Preferred Stock Purchase Agreement.

Warrants

The following table summarizes the warrants outstanding and the number of shares of common stock subject to exercise as of March 31, 2012 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, 2011
    612,594     $ 2.45  
Warrants issued
    ---       ---  
Warrants exercised
    ---       ---  
Warrants cancelled
    ---       ---  
Balance as of March 31, 2012
    612,594     $ 2.45  

Of the warrant shares subject to exercise as of March 31, 2012, expiration of the right to exercise is as follows:
Date of Expiration
 
Number of Warrant Shares of Common Stock Subject to Expiration
 
  July 23, 2014
    69,050  
  May 15, 2015
    357,155  
  June 13, 2016
    35,000  
  July 16, 2016
    116,667  
  July 28, 2016
    34,722  
  Total
    612,594  



 
- 14 -



NOTE 14.
EARNINGS PER SHARE

Basic and Diluted Net Loss Per Share

In accordance with FASB Accounting Standards Codification (“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, convertible debt, convertible preferred 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, convertible debt, convertible preferred 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, 2012 and December 31, 2011:

   
March 31, 2012
   
December 31, 2011
 
Warrants to purchase common stock
    612,594       612,594  
Stock options to purchase common stock
    254,411       287,745  
Unvested restricted common stock
    397       1,096  
Common stock issuable upon the assumed conversion of our convertible notes payable
    232,408       232,408  
Common stock issuable upon the assumed conversion of our convertible preferred stock
    928,572       357,143  
  Total
    2,028,382       1,490,986  






 
- 15 -



NOTE 15.
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 (“Board”), 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 FASB 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:

   
2012 (4)
   
2011(5)
 
Incentive Stock Options
           
Expected volatility  (1)
    ---       94.6 %
Risk-free interest rate %  (2)
    ---       1.93 %
Expected term (in years)
    ---       6.0  
Dividend yield  (3)
    ---       0.0 %
Forfeiture rate
    ---       0.0 %
                 
Nonstatutory Stock Options
               
Expected volatility  (1)
    ---       ---  
Risk-free interest rate %  (2)
    ---       ---  
Expected term (in years)
    ---       ---  
Dividend yield  (3)
    ---       ---  
Forfeiture rate
    ---       ---  

(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.
(4)
The Company did not award any shared-based compensation for the three months ended March 31, 2012.
(5)
The Company did not award any nonstatutory stock options for the three months ended March 31, 2011.


 
- 16 -




Our Board 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:

   
Three Months Ended
 March 31,
 
   
2012
   
2011
 
Incentive Stock Options
           
Quantity
    ---       1,334  
Weighted average fair value per share
    ---     $ 1.15  
Fair value
    ---     $ 1,534  
                 
Nonstatutory Stock Options
               
Quantity
    ---       ---  
Weighted average fair value per share
    ---       ---  
Fair value
    ---       ---  


Stock Options (Incentive and Nonstatutory)

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

   
Three Months Ended
 March 31,
 
   
2012
   
2011
 
Research and development
  $ 6,280     $ 13,150  
Selling, general and administrative
    15,671       23,637  
  Total share-based compensation expense
  $ 21,951     $ 36,787  

At March 31, 2012, 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 $84,143.  The period over which the unearned share-based compensation is expected to be recognized is approximately two years.

The following table summarizes the stock options outstanding and the number of shares of common stock subject to exercise as of March 31, 2012 and the changes therein during the three months then ended:

   
Stock Options
   
Weighted Average Exercise Price per Share
 
Outstanding as of December 31, 2011
    287,745     $ 16.89  
Granted
    ---       ---  
Forfeited/cancelled
    (33,334 )     38.10  
Exercised
    ---       ---  
Outstanding as of March 31, 2012
    254,411     $ 14.11  


 
- 17 -



The following table presents the stock option grants outstanding and exercisable as of March 31, 2012:

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
 
  180,005     $ 5.94       6.6       118,310     $ 7.73  
  37,669       23.73       5.3       37,669       23.73  
  25,403       34.57       5.9       24,556       34.57  
  11,334       66.04       5.0       11,334       66.04  
  254,411     $ 14.11       6.2       191,869     $ 17.75  


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:

   
Three Months Ended
 March 31,
 
   
2012
   
2011
 
Research and development
  $ 1,594     $ 5,019  
Selling, general and administrative
    1,118       3,555  
  Total share-based compensation expense
  $ 2,712     $ 8,574  

At March 31, 2012, 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 $9,590.  The period over which the unearned share-based compensation related to restricted stock awards is expected to be recognized is approximately one year.

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, 2012 and the changes therein during the three months then ended:

   
Restricted stock
   
Weighted Average Grant Date Fair Value
 
Outstanding as of December 31, 2011
    1,096     $ 41.47  
Shares granted
    ---       ---  
Shares forfeited/cancelled
    ---       ---  
Shares exercised/issued
    (699 )     45.39  
Outstanding as of March 31, 2012
    397     $ 34.59  


 
- 18 -



Summary of Plans

2006 Equity Incentive Plan

In March 2006, our Board adopted and our stockholders approved our Incentive Plan, which initially provided for the issuance of up to 133,333 shares of our Common Stock pursuant to stock option and other equity awards.  At the annual meetings of the stockholders held on May 8, 2007, December 17, 2009, and on June 15, 2010, 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 266,667 shares, 200,000 shares, and 200,000 shares, respectively.

In December 2006, we began issuing stock options to employees, consultants, and directors.  The stock options issued generally vest over a period of one to four years and have a maximum contractual term of ten years.  In January 2007, we began issuing restricted stock awards to our employees.  Restricted stock awards generally vest over a period of six months to five years after the date of grant.  Prior to vesting, restricted stock awards do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted stock awards are not considered issued and outstanding.  Shares of common stock are issued on the date the restricted stock awards vest.

As of March 31, 2012, we had granted options to purchase 408,667 shares of Common Stock since the inception of the Incentive Plan, of which 254,411 were outstanding at a weighted average exercise price of $14.11 per share and we had granted awards for 68,616 shares of restricted stock since the inception of the Incentive Plan, of which 397 were outstanding.  As of March 31, 2012, there were 476,046 shares that remained available for future grant under our Incentive Plan.


NOTE 16.
FAIR VALUE MEASUREMENTS

In accordance with ASC Topic 820, Fair Value Measurements, (“ASC Topic 820”) certain assets and liabilities of the Company are required to be recorded at fair value.  Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants.  The guidance in ASC Topic 820 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimized the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on our 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.

 
- 19 -




The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

 
Level 1
Valuations based on quoted prices (unadjusted) for identical assets or liabilities in active markets.

 
Level 2
Valuations based on observable inputs other than quoted prices in Level 1, such as 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 other inputs that are observable or can be corroborated by observable market data.

 
Level 3
Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements.  We review the fair value hierarchy classification on a quarterly basis.  Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

Our financial instruments, including cash, cash equivalents, accounts receivable, and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments.  We believe that the carrying value of our other receivable and convertible note payable balances approximates fair value based on a valuation methodology using the income approach and a discounted cash flow model.

The following table summarizes the fair value of our financial instruments at March 31, 2012 and December 31, 2011.
 

Description
 
March 31, 2012
   
December 31, 2011
 
  Assets:
           
Other receivable (1)
  $ ---     $ 246,410  
                 
  Liabilities:
               
Convertible note payable
  $ 238,033     $ 234,882  
                 
(1) The Company received remittance in March 2012.
           


NOTE 17.
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.


 
- 20 -




NOTE 18.
COMMITMENTS AND CONTINGENCIES

Operating Leases

On January 31, 2006 we entered into a lease agreement for office and laboratory space in Addison, Texas.  The lease commenced on April 1, 2006 and continues until April 1, 2013.  The lease required a minimum monthly lease obligation of $9,330, which is inclusive of monthly operating expenses, until April 1, 2011 and at such time increased to $9,776, which is inclusive of monthly operating expenses.  As of March 31, 2012 our current monthly lease obligation is $9,867, which is inclusive of monthly operating expenses.

On December 10, 2010 we entered into a lease agreement for certain office equipment.  The lease, which commenced on February 1, 2011 and continues until February 1, 2015, requires a minimum lease obligation of $744 per month.

The future minimum lease payments are as follows as of March 31, 2012:

Calendar Years
 
Future Lease Expense
 
  2012 (Nine months)
  $ 95,502  
  2013
    38,529  
  2014
    8,926  
  2015
    744  
  2016
    ---  
  Total
  $ 143,701  

Rent expense for our operating leases amounted to $31,969 and $28,486 for the three months ended March 31, 2012 and 2011, respectively.

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.

 
- 21 -




Employment Agreements

As of March 31, 2012, we were a party to employment agreements with our Vice President and Chief Financial Officer, Terrance K. Wallberg, 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 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 our 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 in favor of us.

Separation Agreements

As of March 31, 2012, we continue to be a party to a separation agreement with Renaat Van den Hooff, our former Chief Executive Officer, dated June 4, 2010.  Pursuant to the terms of the separation agreement we provide or have provided, as applicable, certain benefits to Mr. Van den Hooff, including: (i) payments of $12,500 per month for a period of eighteen (18) months; (ii) a non-statutory stock option to purchase up to 20,000 shares of our common stock, which option is immediately exercisable in full and at any time and from time to time through June 4, 2015 at a per share exercise price of $2.10 (the closing price of our common stock on June 4, 2010); (iii) full acceleration of all vesting schedules for all shares of restricted stock of the Company held by Mr. Van den Hooff; and (iv) for a period of eighteen (18) months following June 4, 2010 we are required to maintain and provide coverage under Mr. Van den Hooff’s existing health coverage plan.  The separation agreement contains a mutual release of claims and other standard provisions.

As of March 31, 2012, we continue to be a party to a separation agreement with Kerry P. Gray, dated March 9, 2009.  Mr. Gray currently serves as our Chairman of the Board, Chairman of the Board’s Executive Committee, Chief Executive Officer, and President.  Pursuant to the terms of the separation agreement, we provide or have 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,  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 forfeited 20,000 stock options previously held by him; and (iv) for a period of twenty-four (24) months following March 9, 2009 we are required to maintain and provide coverage under Mr. Gray’s existing health coverage plan.  The separation agreement contains a mutual release of claims, certain stock lock-up provisions, and other standard provisions.

 
- 22 -




Milestone Payments

We are 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, 2012, 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, we agreed to pay ProStrakan Ltd. a royalty of 30% on any future payments received by us from a new licensee in the United Kingdom and Ireland territories, up to a maximum of $1,400,000.  On November 17, 2008, we entered into a licensing agreement for Amlexanox-related product rights to the United Kingdom and Ireland territories with MEDA AB.


NOTE 19.
LEGAL PROCEEDINGS

We were served in April 2009 with a complaint in an action in the Supreme Court for New York County, State of New York.  On April 19, 2012, we reached a settlement with the plaintiff, R.C.C. Ventures, LLC, of all outstanding litigation between the two companies.  As a result of the settlement, we reported a charge of $22,500 in the first quarter of 2012.


NOTE 20.
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 we consider to be the date of filing with the Securities and Exchange Commission.  No events have occurred that would require potential recognition or disclosure.


 
- 23 -




Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 2011 Annual Report on Form 10-K, referred to as our 2011 Form 10-K, which has been previously filed with the Securities and Exchange Commission on March 30, 2012, including the risk factors set forth therein.  In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involve risks and uncertainties, including the statement that our cash and cash equivalents are sufficient to fund our operations and capital expenditures through the second quarter of 2012.  Our actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other risks discussed in our 2011 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 Nanoflex® and OraDiscTM drug delivery technologies, with the goal of improving outcomes for patients, health care professionals, and health care payers.

Our strategy is twofold:

§
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 Nanoflex® technology to treat the various phases of wound healing; and
§
Develop our oral-transmucosal technology (OraDiscTM) and generate revenues through multiple licensing agreements.

Utilizing our technologies, three of our products have been approved for marketing in various global markets.  In addition, numerous additional products are under development utilizing our patented Nanoflex® and OraDiscTM drug delivery technologies.

Altrazeal® Transforming Powder Dressing, based on our Nanoflex® technology, has the potential to change the way health care providers approach their treatment of wounds.  Launched in September 2008, the product is indicated for exuding wounds such as partial thickness burns, donor sites, abrasions, surgical, acute and chronic wounds.

Aphthasol®, our Amlexanox 5% paste product is the first drug approved by the FDA for the treatment of canker sores.

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.


 
- 24 -



Recent Developments

Transition from NYSE Amex to OTCQB marketplace

Despite the NYSE Amex LLC’s (the “Exchange”) notice to us on February 3, 2012 indicating that the Exchange had accepted our plans of compliance and granted us an extension until April 2, 2012 to regain compliance with the continued listing standards of Section 1003(a)(iv) of the Exchange’s Company Guide and an extension until March 21, 2013 to regain compliance with the continued listing standards of Section 1003(a)(iii) of the Exchange’s Company Guide, our management and Board of Directors, on March 9, 2012, determined that it was in our best interest to voluntarily delist our common stock from the Exchange.

On March 12, 2012, we notified the Exchange of our intention to file a Form 25 with the SEC to effect the voluntary delisting of our common stock from the Exchange and to move to the OTCQB™ marketplace (the “OTCQB”), operated by the OTC Markets Group.  The OTCQB is a market tier for over-the-counter-traded companies that are registered and reporting with the SEC.

On March 22, 2012, we filed the Form 25 with the SEC.  Effective as of market open on April 2, 2012, our common stock began quotation and trading on the OTCQB under the symbol “ULUR”.  We intend to continue to file reports pursuant to the requirements of the Securities Exchange Act of 1934, as amended.

License Agreement

On January 11, 2012, we executed a License and Supply Agreement (the “Melmed Agreement”) with Melmed Holding AG to market Altrazeal ® throughout the European Union, Australia, New Zealand, North Africa, and the Middle East.  Under the terms of the Melmed Agreement, we will receive licensing fees of $250,000 in 2012, certain royalties on product sales within the territories, and will supply Altrazeal® at a price equal to 30% of the net sales price.  Contemporaneous with the execution of the Melmed Agreement, we also executed a shareholders’ agreement for the establishment of Altrazeal Trading Ltd., a single purpose entity to be used for the exclusive marketing of Altrazeal® throughout the European Union, Australia, New Zealand, North Africa, and the Middle East.  We received a non-dilutable 25% ownership interest in Altrazeal Trading Ltd.

 
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Preferred Stock Transaction

On September 13, 2011, we entered into a Preferred Stock Purchase Agreement (the “Series A Agreement”) with Ironridge Global III, LLC, a Delaware limited liability company (“Ironridge Global”), under which Ironridge Global committed to purchase for cash up to $650,000 of the Company’s redeemable, convertible Series A Preferred Stock (the “Series A Stock”) at $10,000 per share of Series A Stock.  The Series A Stock is convertible at the option of the Company at a fixed conversion price of $0.70.  The conversion price for the holder is fixed with no adjustment mechanisms, resets, or anti-dilution covenants, other than the customary adjustments for stock splits.  The conversion price, if we elect to convert the Series A Stock, is subject to adjustment based on the market price of our common stock and any applicable early redemption price at the time we convert.

Under the terms of the Series A Agreement, on September 20, 2011, we presented Ironridge Global with our initial notice to purchase Series A Stock and Ironridge Global funded the purchase of 15 shares of Series A Stock for cash of $150,000.  On November 8, 2011, we and Ironridge Global entered into a First Amendment to Preferred Stock Purchase Agreement (the “First Amendment”) for the purpose of revising certain terms and conditions contained in the Series A Agreement, to include an updated schedule for the timing and number of shares for certain purchase obligations, the option by us to set the per share price of the Series A Stock below $10,000 subject to certain calculations, and to define certain terms contained therein.  Pursuant to the First Amendment, we presented Ironridge Global with notice and Ironridge Global funded the purchase of additional Series A Stock in installments as follows:

§  
10 Series A Stock shares for $100,000 on November 9, 2011;
§  
25 Series A Stock shares for $148,750 on January 13, 2012; and
§  
15 Series A Stock shares for $141,525 on January 23, 2012.

On August 22, 2011, we entered into a Finder’s Fee and Indemnity Agreement with Maxim Group LLC (“Maxim”) to assist us, on a non-exclusive basis, with finding and introducing investors as a potential source for financing.  We paid Maxim a finder’s fee, in cash, equal to 5% of the total cash consideration paid to us as a result of each preferred stock financing event resulting from Maxim’s introduction of Ironridge Global.

 
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Common Stock Transaction

On September 13, 2011, we entered into a Common Stock Purchase Agreement (the “Common Stock Agreement”) with Ironridge Global BioPharma, a division of Ironridge Global IV, Ltd. (“Ironridge”), under which we delivered four notices to Ironridge exercising our right to require Ironridge to purchase up to $969,000 of our common stock at a price per share equal to $0.50.

We presented the notices to Ironridge for the purchase of common stock, with Ironridge purchasing each tranche of shares of common stock with a promissory note, as follows:

§  
646,364 shares of common stock for $323,182 on September 16, 2011;
§  
300,000 shares of common stock for $150,000 on November 7, 2011;
§  
500,000 shares of common stock for $250,000 on December 22, 2011; and
§  
491,636 shares of common stock for $245,818 on January 12, 2012.

The promissory notes bear interest at 1.5% per year calculated on a simple interest basis.  The entire principal balance and interest thereon is due and payable seven and one-half years from the date of each promissory note, but no payments are due so long as we are in default under the Common Stock Agreement or the Series A Agreement or if there are any shares of Series A Stock issued or outstanding. Each promissory note is secured by the borrower’s right, title and interest in all shares legally or beneficially owned by Ironridge or an affiliate, as more fully described in the note.

We completed the offering and sale of shares of common stock to Ironridge 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 September 15, 2011.

We will pay Maxim a finder’s fee equal to 5% of the total cash consideration paid to us as a result of the cash proceeds received from Ironridge.

 
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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, 2012 and 2011

Total Revenues

Revenues were approximately $60,000 for the three months ended March 31, 2012, as compared to revenues of approximately $75,000 for the three months ended March 31, 2011, and were comprised of licensing fees of approximately $8,000 from Altrazeal® and OraDisc™ licensing agreements, royalties of approximately $16,000 from the sale of Aphthasol® by our domestic distributor, and product sales of approximately $36,000 for Altrazeal®.

The first quarter 2012 revenues represent an overall decrease of approximately $15,000 versus the comparative first quarter 2011 revenues.  The decrease in revenues is primarily attributable to a decrease of $20,000 in Altrazeal® product sales.  The revenue decrease was partially offset by an increase of $3,000 in Aphthasol® royalties from our domestic distributor and an increase of $2,000 in Altrazeal® licensing fees.

Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2012 was approximately $16,000 and was comprised entirely of costs associated with Altrazeal®.  Cost of goods sold for the three months ended March 31, 2011 was approximately $16,000 and was comprised entirely of costs associated with Altrazeal®.



 
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Research and Development

Research and development expenses totaled approximately $193,000 for the three months ended March 31, 2012, including $8,000 in share-based compensation, compared to approximately $274,000 for the three months ended March 31, 2011, which included $18,000 in share-based compensation.  The decrease of approximately $81,000 in research and development expenses was primarily due to lower direct research costs of $53,000, lower costs for regulatory consulting of $12,000, lower scientific compensation costs of $12,000 primarily related to share-based compensation, and lower operating costs of $4,000.

The direct research and development expenses for the three months ended March 31, 2012 and 2011 were as follows:

   
Three Months Ended March 31,
 
Technology
 
2012
   
2011
 
  Wound care & nanoparticle
  $ 9,000     $ 62,000  
  OraDisc™
    4,000       3,000  
  Aphthasol® & other technologies
    1,000       2,000  
  Total
  $ 14,000     $ 67,000  


Selling, General and Administrative

Selling, general and administrative expenses totaled approximately $476,000 for the three months ended March 31, 2012, including $17,000 in share-based compensation, compared to approximately $659,000 for the three months ended March 31, 2011, which included $27,000 in share-based compensation.

The decrease of approximately $183,000 in selling, general and administrative expenses was primarily due to lower costs for compensation of $44,000 as a result of the termination of payments associated with a separation agreement with our former President and reduced share-based compensation, lower sales & marketing costs of $97,000 due to a revised sales and marketing plan, lower legal costs relating to our patents of $46,000, reduced investor relations consulting of $37,000, lower legal costs of $9,000, lower bad debt expense of $9,000, and reduced corporate travel of $5,000.  These expense decreases were partially offset by an increase in accounting fees of $13,000 for annual audit costs, the cost of $28,000 associated with the early remittance of the receivable from our divestiture of the Zindaclin® technology in June 2010, and the cost of $23,000 for the pending litigation settlement with R.C.C. Ventures, LLC.

Amortization of Intangible Assets

Amortization of intangible assets expense totaled approximately $118,000 for the three months ended March 31, 2012 as compared to approximately $202,000 for the three months ended March 31, 2011.  The expense for each period consists primarily of amortization associated with our acquired patents.  The decrease of approximately $84,000 is attributable to the expiration of the amortization of the Aphthasol® patent in November 2011.  There were no additional purchases of patents during the three months ended March 31, 2012 and 2011, respectively.

 
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Depreciation

Depreciation expense totaled approximately $75,000 for the three months ended March 31, 2012 as compared to approximately $77,000 for the three months ended March 31, 2011.  The decrease of approximately $2,000 is attributable to certain equipment being fully depreciated.

Interest and Miscellaneous Income

Interest and miscellaneous income totaled approximately $2,000 for the three months ended March 31, 2012 as compared to approximately $4,000 for the three months ended March 31, 2011.  The decrease of approximately $2,000 is attributable to a decrease in interest income resulting from imputed interest being recognized in 2011 from the divestiture of the Zindaclin® technology.

Interest Expense

Interest expense totaled approximately $25,000 for the three months ended March 31, 2012 as compared to approximately $13,000 for the three months ended March 31, 2011.  Interest expense is comprised of financing costs for our insurance policies, interest costs related to regulatory fees, and interest costs and amortization of debt discount related to our convertible debt.  The increase of approximately $12,000 is primarily attributable to costs associated with our convertible debt and interest costs related to regulatory fees.



 
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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, 2012 our cash and cash equivalents were $258,266 which is an increase of $211,646 as compared to our cash and cash equivalents at December 31, 2011 of $46,620.  Our working capital (current assets less current liabilities) was $(694,247) at March 31, 2012 as compared to our working capital at December 31, 2011 of $(704,411).

Consolidated Cash Flow Data
   
Three Months Ended March 31,
 
Net Cash Provided by (Used in)
 
2012
   
2011
 
  Operating activities
  $ (313,043 )   $ (724,360 )
  Investing activities
    220,000       ---  
  Financing activities
    304,689       411,990  
  Net Increase (Decrease) in cash and cash equivalents
  $ 211,646     $ (312,370 )


Operating Activities

For the three months ended March 31, 2012, net cash used in operating activities was approximately $313,000.  The principal components of net cash used for the three months ended March 31, 2012 were our net loss of approximately $843,000, an increase of $31,000 in prepaid expenses, a decrease of $13,000 in accounts payable due to timing of vendor payments, and a decrease in accrued expenses of $61,000.  Our net loss for the three months ended March 31, 2012 included substantial non-cash charges of $352,000 in the form of share-based compensation, amortization of patents, depreciation, debt discount, and common stock issued for services.  The aforementioned net cash used for the three months ended March 31, 2012 was partially offset by an increase in deferred revenue of $217,000, an increase in accrued interest of $7,000 relating to our convertible debt, a decrease in receivables of $36,000 due to collection activities, and a decrease in inventory of $23,000.

For the three months ended March 31, 2011, net cash used in operating activities was approximately $724,000.  The principal components of net cash used for the three months ended March 31, 2011 were our net loss of approximately $1,161,000, a decrease of $6,000 in deferred revenue due to amortization, a decrease of $46,000 in accrued liabilities due primarily to the final installment payments on our insurance premium financing, and an increase of $14,000 in inventory related to the manufacture of Aphthasol®.  Our net loss for the three months ended March 31, 2011 included substantial non-cash charges of $339,000 in the form of share-based compensation, amortization of patents, and depreciation.  The aforementioned net cash used for the three months ended March 31, 2011 was partially offset by an increase in accounts payable of $69,000 due to timing of vendor payments, a decrease in prepaid expenses of $61,000 due to expense amortization, and a decrease in accounts receivable of $34,000 due to collection of a milestone due from ProStrakan.

 
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Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2012 was $220,000 and relates to the fourth and final payment from the divestiture of our Zindaclin® intangible asset.

There were no investing activities for the three months ended March 31, 2011.


Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2012 was approximately $305,000 and was comprised of approximately $276,000 from the net proceeds of our sale of preferred stock in January 2012 and approximately $29,000 from a decrease in the estimate of offering costs associated with the sale of preferred stock in 2011.

Net cash provided by financing activities for the three month ended March 31, 2011 was approximately $412,000 from the sale of common stock and warrants in January 2011.


Liquidity

In July 2009, we restructured our operations in efforts to reduce operating expenses, optimize operations, and to conserve the necessary cash to further our business plan.  These conservation efforts were in place during 2010 and 2011 and will continue to be in effect as part of our strategic plan for 2012.  Currently, a core management group is being supplemented by a small selection of external consultants to support our primary business activities.  Selling efforts for Altrazeal® are continuing with our own sales force and a network of independent sales representatives throughout the country.

We continue to seek strategic relationships whereby we can more effectively maximize the revenue potential of Altrazeal®, future product candidates, as well as continuing, with the assistance of an investment bank, to explore future fundraising and through the sale of non-core assets.

During the past eighteen months we have closed the following equity and debt offerings:

Preferred Stock

In September 2011, November 2011, and January 2012, we closed preferred stock offerings with Ironridge Global III, LLC.  In these offerings, we sold 65 shares of our Series A preferred stock for aggregate gross proceeds of $540,000 ($475,000 approximate net proceeds to us).

Secured Convertible Debt

In June 2011 and July 2011, we closed secured convertible debt financings with Kerry P. Gray and received aggregate net proceeds of $140,000 and $125,000, respectively.

 
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Common Stock

In January 2011, we closed the January 2011 Common Stock Offering.  In this offering, we sold 333,333 shares of our common stock and warrants to purchase up to 116,667 shares of our common stock for aggregate gross proceeds of $500,000 ($412,000 approximate net proceeds to us);

In September 2011, November 2011, December 2011, and January 2012, we closed common stock offerings with Ironridge Global IV, Ltd.  In these offerings, we sold 1,938,000 shares of our common stock for aggregate gross proceeds of $969,000 with such proceeds in the form of secured promissory notes.

We have utilized a registration statement on Form S-3, declared effective on July 23, 2009, in connection with the following securities offerings:

§
November 2009
Initial registered direct offering of 714,298 shares of our common stock and warrants to purchase up to 357,155 shares of our common stock for aggregate gross proceeds of $1.5 million ($1.3 million approximate net proceeds to us);
§
February 2010
Second registered direct offering of 333,333 shares of our common stock for aggregate gross proceeds of $1 million ($0.9 million approximate net proceeds to us);
§
January 2011
Third registered direct offering of 333,333 shares of our common stock and warrants to purchase up to 116,667 shares of our common stock for aggregate gross proceeds of $0.5 million ($0.4 million approximate net proceeds to us);
§
September 2011
Fourth registered direct offering of 646,364 shares of our common stock with Ironridge Global IV, Ltd for aggregate gross proceeds of approximately $0.3 million, with such proceeds in the form of a secured promissory note;
§
November 2011
Fifth registered direct offering of 300,000 shares of our common stock with Ironridge Global IV, Ltd for aggregate gross proceeds of approximately $0.2 million, with such proceeds in the form of a secured promissory note;
§
December 2011
Sixth registered direct offering of 500,000 shares of our common stock with Ironridge Global IV, Ltd for aggregate gross proceeds of approximately $0.2 million, with such proceeds in the form of a secured promissory note; and
§
January 2012
Seventh registered direct offering of 491,636 shares of our common stock with Ironridge Global IV, Ltd for aggregate gross proceeds of approximately $0.2 million, with such proceeds in the form of a secured promissory note.





 
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As of March 31, 2012, we had cash and cash equivalents of approximately $258,000.  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 2012 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 our existing liquidity, the expected level of operating expenses, projected sales of our existing products combined with other revenues and proceeds from the divestiture of non-core assets, we believe that we will be able to meet our working capital and capital expenditure requirements through the second quarter of 2012.  We do not expect any material changes in our capital expenditure spending during 2012.  However, we cannot be sure that our anticipated revenues will be realized or that we will generate significant positive cash flow from operations.  We are unable to assert that our financial position is sufficient to fund operations beyond the second quarter of 2012, and as a result, there is substantial doubt about our ability to continue as a going concern.

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, 2012, which consists of a lease agreement for office and laboratory space in Addison, Texas which commenced on April 1, 2006, a lease agreement for office equipment, separation agreements with a former chief executive officer and our current chief executive officer, Kerry P. Gray, and two convertible note agreements with Kerry P. Gray.

   
Payments Due By Period
 
Contractual Obligations
 
Total
   
Less Than
1 Year
   
2-3
Years
   
4-5
Years
   
After 5
Years
 
  Operating leases
  $ 143,701     $ 127,336     $ 16,365     $ ---     $ ---  
  Separation agreements
    341,851       204,351       137,500       ---       ---  
  Convertible notes
    344,500       26,193       318,307       ---       ---  
  Total contractual cash obligations
  $ 830,052     $ 357,880     $ 472,172     $ ---     $ ---  


Off-Balance Sheet Arrangements

As of March 31, 2012, 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.

 
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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, 2011 as filed with the Securities and Exchange Commission on March 30, 2012.  We had no significant changes in our critical accounting policies since our last annual report.


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 and capital expenditure requirements through the second quarter of 2012, 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 2011 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.

 
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Quantitative and Qualitative Disclosures About Market Risk.

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, 2012 and December 31, 2011 our cash and cash equivalents totaled $258,266 and $46,620, 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 banking institutions.

Concentration of credit risk with respect to trade accounts receivable is limited to certain customers with balances that exceed 5% of total consolidated trade accounts receivable at March 31, 2012 and at December 31, 2011.  As of March 31, 2012, three customers exceeded the 5% threshold, each customer with 47%, 46%, and 5%, respectively.  Four customers exceeded the 5% threshold at December 31, 2011, each customer with 36%, 24%, 14%, and 6%, respectively.  To reduce risk, we routinely assess the financial strength of our most significant customers and monitor the amounts owed to us, taking appropriate action when necessary.  As a result, we believe that accounts receivable credit risk exposure is limited.  We maintain an allowance for doubtful accounts, but historically have not experienced any significant losses related to an individual customer or group of customers.


Controls and Procedures.

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 Rule 13a-15(e) and Rule 15d015(e) 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 our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our 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 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 Securities and Exchange Commission’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, 2012 that have materially affected, or are reasonably likely to material affect, our internal controls over financial reporting.

 
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 Legal Proceedings.

We were served in April 2009 with a complaint in an action in the Supreme Court for New York County, State of New York.  On April 19, 2012, we reached a settlement with the plaintiff, R.C.C. Ventures, LLC, of all outstanding litigation between the two companies.  As a result of the settlement, we reported a charge of $22,500 in the first quarter of 2012.  While we do not believe our actions were a breach of the agreements between both parties, after carefully considering the costs of continued litigation and the inherent uncertainty in this type of action, management concluded that a settlement was in the best interest of the Company, its shareholders and employees.


 Risk Factors.

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our 2011 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2012.


Unregistered Sales of Equity Securities and Use of Proceeds.

Preferred Stock Purchase Agreement

On September 13, 2011, we entered into a Preferred Stock Purchase Agreement (the “Series A Agreement”) with Ironridge Global III, LLC, a Delaware limited liability company (“Ironridge Global”), under which Ironridge Global committed to purchase for cash up to $650,000 of the Company’s redeemable, convertible Series A Preferred Stock (the “Series A Stock”) at $10,000 per share of Series A Stock.  The Series A Stock is convertible at the option of the Company at a fixed conversion price of $0.70.  The conversion price for the holder is fixed with no adjustment mechanisms, resets, or anti-dilution covenants, other than the customary adjustments for stock splits.  The conversion price, if we elect to convert the Series A Stock, is subject to adjustment based on the market price of our common stock and any applicable early redemption price at the time we convert.

Under the terms of the Series A Agreement, on September 20, 2011, we presented Ironridge Global with our initial notice to purchase Series A Stock and Ironridge Global funded the purchase of 15 shares of Series A Stock for cash of $150,000.  On November 8, 2011, we and Ironridge Global entered into a First Amendment to Preferred Stock Purchase Agreement (the “First Amendment”) for the purpose of revising certain terms and conditions contained in the Series A Agreement, to include an updated schedule for the timing and number of shares for certain purchase obligations, the option by us to set the per share price of the Series A Stock below $10,000 subject to certain calculations, and to define certain terms contained therein.  Pursuant to the First Amendment, we presented Ironridge Global with notice and Ironridge Global funded the purchase of additional Series A Stock in installments as follows:

§  
10 Series A Stock shares for $100,000 on November 9, 2011;
§  
25 Series A Stock shares for $148,750 on January 13, 2012; and
§  
15 Series A Stock shares for $141,525 on January 23, 2012.

 
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On August 22, 2011, we entered into a Finder’s Fee and Indemnity Agreement with Maxim to assist us, on a non-exclusive basis, with finding and introducing investors as a potential source for financing.  We paid Maxim a finder’s fee, in cash, equal to 5% of the total cash consideration paid to us as a result of each preferred stock financing event resulting from Maxim’s introduction of Ironridge Global.

The Company agreed to issue the Series A Stock in reliance upon the private placement exemption in Section 4(2) of the Securities Act of 1933, as amended (the “Act”), and Regulation D thereunder.

Defaults Upon Senior Securities.

None.


Removed and Reserved.



Other Information.

None.


Exhibits.

Exhibit Number
 
Description
101
***
The following financial statements are from ULURU Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets; (ii) Unaudited Condensed Consolidated Statements of Operations; (iii) Unaudited Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Unaudited Condensed Consolidated Financial Statements
---------------------------------------------------
 
*
Filed herewith.
 
**
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 Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 
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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 15, 2012
 
By:
 /s/ Kerry P. Gray
 
   
Kerry P. Gray
   
Chief Executive Officer and President
   
(Principal Executive Officer)
   
   
 Date:  May 15, 2012
 
By:
 /s/ Terrance K. Wallberg
 
   
Terrance K. Wallberg
   
Chief Financial Officer and Vice President
   
(Principal Financial and Accounting Officer)
 

 

 
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