10-Q 1 form10q_033111.htm FORM 10-Q 03/31/2011 form10q_033111.htm



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

FORM 10-Q

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

For the quarterly period ended: March 31, 2011

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 16, 2011, there were 87,341,709 shares of the registrant’s Common Stock, $0.001 par value per share, issued and outstanding.

 
 

 



INDEX TO FORM 10-Q

For the Three Months Ended MARCH 31, 2011



   
Page
 
     
     
 
 
 
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
     





Financial Statements.


CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31, 2011
   
December 31, 2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 329,071     $ 641,441  
Accounts receivable, net
    36,534       74,466  
Other receivable, current portion
    248,260       246,430  
Inventory
    832,246       818,304  
Prepaid expenses and deferred charges
    154,650       215,624  
Total Current Assets
    1,600,761       1,996,265  
                 
Property, Equipment and Leasehold Improvements, net
    1,298,625       1,375,484  
                 
Other Assets
               
Intangible assets, net
    5,189,599       5,391,567  
Other receivable, net of current portion
    240,903       239,128  
Deposits
    18,069       18,069  
Total Other Assets
    5,448,571       5,648,764  
                 
TOTAL ASSETS
  $ 8,347,957     $ 9,020,513  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities
               
Accounts payable
  $ 827,529     $ 758,578  
Accrued liabilities
    190,301       236,486  
Deferred revenue, current portion
    24,533       24,533  
Total Current Liabilities
    1,042,363       1,019,597  
                 
Long Term Liabilities
               
Deferred revenue, net of current portion
    588,604       594,653  
                 
TOTAL LIABILITIES
    1,630,967       1,614,250  
                 
COMMITMENTS AND CONTINGENCIES
    ---       ---  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock - $0.001 par value; 20,000 shares authorized;
               
no shares issued and outstanding
    ---       ---  
                 
Common Stock - $0.001 par value; 200,000,000 shares authorized;
               
87,341,709 and 82,117,230 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
    87,342       82,117  
Additional paid-in capital
    48,648,419       48,181,294  
Accumulated  (deficit)
    (42,018,771 )     (40,857,148 )
TOTAL STOCKHOLDERS’ EQUITY
    6,716,990       7,406,263  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 8,347,957     $ 9,020,513  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
REVENUES
           
License fees
  $ 6,049     $ 22,383  
Royalty income
    13,387       53,061  
Product sales, net
    55,735       159,786  
Other
    ---       ---  
Total Revenues
    75,171       235,230  
                 
COSTS AND EXPENSES
               
Cost of goods sold
    16,262       130,683  
Research and development
    273,798       285,784  
Selling, general and administrative
    659,093       816,888  
Amortization of intangible assets
    201,968       246,516  
Depreciation
    76,858       49,990  
Total Costs and Expenses
    1,227,979       1,529,861  
                 
OPERATING (LOSS)
    (1,152,808 )     (1,294,631 )
                 
Other Income (Expense)
               
Interest and miscellaneous income
    4,036       121  
Interest expense
    (12,851 )     (7,988 )
(LOSS) BEFORE INCOME TAXES
    (1,161,623 )     (1,302,498 )
                 
Income taxes
    ---       ---  
NET (LOSS)
  $ (1,161,623 )   $ (1,302,498 )
                 
                 
Basic and diluted net (loss) per common share
  $ (0.01 )   $ (0.02 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    87,008,918       79,955,904  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended March 31,
 
   
2011
   
2010
 
OPERATING ACTIVITIES :
           
Net loss
  $ (1,161,623 )   $ (1,302,498 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
                 
Amortization of intangible assets
    201,968       246,516  
Depreciation
    76,858       49,990  
Share-based compensation for stock and options issued to employees
    29,343       146,081  
Share-based compensation for options issued to non-employees
    16,018       7,951  
Common stock issued for services
    15,000       ---  
                 
Change in operating assets and liabilities:
               
Accounts receivable
    37,932       22,918  
Other receivable
    (3,605 )     ---  
Inventory
    (13,942 )     58,851  
Prepaid expenses and deferred charges
    60,974       66,431  
Deposits
    ---       2,750  
Accounts payable
    68,951       167,421  
Accrued liabilities
    (46,185 )     (32,521 )
Deferred revenue
    (6,049 )     (23,246 )
Total
    437,263       713,142  
                 
Net Cash Used in Operating Activities
    (724,360 )     (589,356 )
                 
FINANCING ACTIVITIES :
               
Proceeds from sale of common stock and warrants, net
    411,990       ---  
Proceeds from sale of common stock, net
    ---       857,980  
Net Cash Provided by Financing Activities
    411,990       857,980  
                 
Net (Decrease) Increase in Cash
    (312,370 )     268,624  
                 
Cash,  beginning of period
    641,441       1,934,177  
Cash,  end of period
  $ 329,071     $ 2,202,801  
                 
                 
SUPPLEMENTAL CASH FLOW DISCLOSURE:
               
Cash paid for interest
  $ 757     $ 488  
                 
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, 2011 and the results of its operations for the three months ended March 31, 2011 and 2010 and cash flows for the three months ended March 31, 2011 and 2010 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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2011, 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, 2010, 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 into the third quarter of 2011.  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 third quarter of 2011, and as a result, there is substantial doubt about our ability to continue as a going concern beyond the third quarter of 2011.


NOTE 2.                      SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2011 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, 2010, as filed with the Securities and Exchange Commission on March 31, 2011.


NOTE 3.                      THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-17, Milestone Method of Revenue Recognition (“ASU 2010-17”), which provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.  Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a study or achieving a specific result from the research or development efforts.  The amendments in this ASU provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate.  ASU 2010-17 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010, with early adoption permitted.  The Company’s adoption of the provisions of ASU 2010-17 did not have a material effect on its consolidated results of operations, financial position or liquidity.

There have been no new recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2011, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, that are of significance, or potential significance, to the Company.





NOTE 4.                      SEGMENT INFORMATION

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

Our revenues are currently derived primarily from one licensee for domestic activities, 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
 
2011
   
%
   
2010
   
%
 
  Domestic
  $ 69,122       92 %   $ 167,031       71 %
  International
    6,049       8 %     68,199       29 %
  Total
  $ 75,171       100 %   $ 235,230       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
 
2011
   
2010
 
  Discus Dental, Inc.
  Aphthasol®
    18 %     62 %
  ProStrakan, Ltd.
  Zindaclin®
    ---       19 %
  Total
      18 %     81 %
                   


NOTE 5.                      OTHER RECEIVABLE

On June 25, 2010, the Company 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 ULURU.  Guaranteed payments of $1,050,000 are scheduled to be received by the Company, of which $550,000 occurred in 2010, $250,000 will occur in June 2011, and $250,000 will occur in June 2012.  The receipt of the full $5.1 million purchase price will be dependent on product approval in the United States.

Other receivables consisted of the following at March 31, 2011 and December 31, 2010:

   
March 31, 2011
   
December 31, 2010
 
Payment obligation due:
 
Gross
Receivable
   
Imputed
 Interest
   
Net
Receivable
   
Gross
Receivable
   
Imputed
 Interest
   
Net
Receivable
 
2011
  $ 250,000     $ 1,740     $ 248,260     $ 250,000     $ 3,570     $ 246,430  
2012
    250,000       9,097       240,903       250,000       10,872       239,128  
Total
  $ 500,000     $ 10,837     $ 489,163     $ 500,000     $ 14,442     $ 485,558  





NOTE 6.                      INVENTORY

As of March 31, 2011, 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, 2011 and December 31, 2010:

Inventory
 
March 31, 2011
   
December 31, 2010
 
  Finished goods
  $ 437,733     $ 450,820  
  Work-in-progress
    323,514       296,485  
  Raw materials
    70,999       70,999  
  Total
  $ 832,246     $ 818,304  


NOTE 7.                      PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, net, consisted of the following at March 31, 2011 and December 31, 2010:

Property, equipment and leasehold improvements
 
March 31, 2011
   
December 31, 2010
 
  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
    ( 849,795 )     (772,936 )
  Property, equipment and leasehold improvements, net
  $ 1,298,625     $ 1,375,484  

Depreciation expense on property, equipment and leasehold improvements was $76,858 and $49,990 for the three months ended March 31, 2011 and 2010, respectively.





NOTE 8.                      INTANGIBLE ASSETS

Intangible assets are comprised of patents acquired in October, 2005.  Intangible assets, net consisted of the following at March 31, 2011 and December 31, 2010:

Intangible assets
 
March 31, 2011
   
December 31, 2010
 
  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
    ( 4,436,339 )     (4,234,371 )
  Intangible assets, net
  $ 5,189,599     $ 5,391,567  

Amortization expense for intangible assets was $201,968 and $246,516 for the three months ended March 31, 2011 and 2010, respectively.  The future aggregate amortization expense for intangible assets, remaining as of March 31, 2011, is as follows:

Calendar Years
 
Future Amortization
Expense
 
  2011 (Nine months)
  $ 567,164  
  2012
    476,450  
  2013
    475,148  
  2014
    475,148  
  2015
    475,148  
  2016 & Beyond
    2,720,541  
  Total
  $ 5,189,599  


NOTE 9.                      ACCRUED LIABILITIES

Accrued liabilities consisted of the following at March 31, 2011 and December 31, 2010:

Accrued Liabilities
 
March 31, 2011
   
December 31, 2010
 
  Accrued taxes – payroll
  $ 106,299     $ 106,299  
  Accrued compensation/benefits
    60,826       48,078  
  Accrued insurance payable
    15,519       74,603  
  Product rebates/returns
    45       282  
  Other
    7,612       7,224  
  Total accrued liabilities
  $ 190,301     $ 236,486  


 
- 10 -




NOTE 10.                      EQUITY TRANSACTIONS

On January 3, 2011, we entered into a Securities Purchase Agreement with an institutional investor whereby we agreed to sell and issue to the investor the following securities (the “January 2011 Offering”):

 
§ 
5,000,000 shares of our common stock, par value $0.001 per share; and
 
§ 
Warrants to purchase up to 1,750,000 shares of our common stock (the “Warrants”).

The Warrants have an initial exercise price of $0.102 per share, and may be exercised at any time and from time to time on or after July 6, 2011 through and including July 6, 2016.

On January 6, 2011, we closed the January 2011 Offering and received aggregate net proceeds of approximately $412,000 after deducting placement fees and offering expenses payable by us (and excluding any proceeds from exercise of the Warrants).

Rodman & Renshaw, LLC acted as our exclusive placement agent and received a placement fee of $35,000 (equal to 7% of the aggregate gross proceeds of the January 2011 Offering) as well as compensation warrants to purchase up to an aggregate of 250,000 shares (equal to 5% of the aggregate number of shares sold in the January 2011 Offering) of our common stock at an exercise price of $0.128 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Industry Regulatory Authority.

We completed the offering and sale of the above shares and warrants in the January 2011 Offering pursuant to a shelf registration statement on Form S-3 (Registration No. 333-160568) declared effective by the Securities and Exchange Commission on July 23, 2009, and a base prospectus dated as of the same date, as supplemented by a prospectus supplement filed with the Securities and Exchange Commission on January 5, 2011.

 
- 11 -



NOTE 11.                      STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2011, the Company had 87,341,709 shares of common stock issued and outstanding.  The Company issued 5,224,479 shares of common stock during the three months ended March 31, 2011 comprised of 78,645 shares of common stock for the vesting of certain restricted stock awards, 145,834 shares of common stock for services provided by consultants, and 5,000,000 shares of common stock in the January 2011 Offering described in Note 10 above.

Warrants

The following table summarizes the warrants outstanding and the number of shares of common stock subject to exercise as of March 31, 2011 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, 2010
    9,537,956     $ 0.45  
Warrants issued
    2,000,000       0.11  
Warrants exercised
    ---       ---  
Warrants cancelled
    ---       ---  
Balance as of March 31, 2011
    11,537,956     $ 0.39  


Of the warrant shares subject to exercise as of March 31, 2011, expiration of the right to exercise is as follows:
Date of expiration
 
Number of Warrant Shares of Common Stock Subject to Expiration
 
  August 30, 2011
    1,125,000  
  December 6, 2011
    1,670,000  
  July 23, 2014
    1,035,723  
  May 15, 2015
    5,357,233  
  December 7, 2015
    600,000  
  July 16, 2016
    1,750,000  
  Total
    11,537,956  


 
- 12 -



NOTE 12.                      EARNINGS PER SHARE

Basic and Diluted Net Loss Per Share

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

Shares used in calculating basic and diluted net loss per common share exclude these potential common shares as of March 31, 2011 and December 31, 2010:

   
March 31, 2011
   
December 31, 2010
 
Antidilutive warrants to purchase common stock
    11,537,956       9,537,956  
Antidilutive options to purchase common stock
    4,376,000       4,356,000  
Restricted vesting common stock
    16,393       95,038  
Total
    15,930,349       13,988,994  


 
- 13 -



NOTE 13.                      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 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:

   
2011
   
2010
 
Incentive Stock Options
           
Expected volatility  (1)
    94.5 %     85.0 %
Risk-free interest rate %  (2)
    1.93 %     2.43 %
Expected term (in years)
    6.0       6.0  
Dividend yield  (3)
    0.0 %     0.0 %
Forfeiture rate
    0.0 %     0.0 %
                 
Nonstatutory Stock Options (4)
               
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 nonstatutory stock options for the three months ended March 31, 2011 and 2010, respectively.


 
- 14 -




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:

   
2011
   
2010
 
Incentive Stock Options
           
Quantity
    20,000       20,000  
Weighted average fair value per share
  $ 0.07     $ 0.14  
Fair value
  $ 1,354     $ 2,749  
                 
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:

   
2011
   
2010
 
Research and development
  $ 13,150     $ 23,475  
Selling, general and administrative
    23,637       109,583  
Total share-based compensation expense
  $ 36,787     $ 133,058  

At March 31, 2011, 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 $218,458.  The period over which the unearned share-based compensation is expected to be recognized is approximately three years.

The following table summarizes the stock options outstanding and the number of shares of common stock subject to exercise as of March 31, 2011 and the changes therein during the three months then ended:

   
Stock Options
   
Weighted Average Exercise Price per Share
 
Outstanding as of December 31, 2010
    4,356,000     $ 1.12  
Granted
    20,000       0.10  
Forfeited/cancelled
    ---       ---  
Exercised
    ---       ---  
Outstanding as of March 31, 2011
    4,376,000     $ 1.11  


 
- 15 -



The following table presents the stock option grants outstanding and exercisable as of March 31, 2011:

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
 
  2,760,000     $ 0.39       7.6       1,477,083     $ 0.58  
  565,000       1.58       6.3       565,000       1.58  
  881,000       2.44       3.5       811,105       2.45  
  170,000       4.40       6.0       170,000       4.40  
  4,376,000     $ 1.11       6.6       3,023,188     $ 1.49  


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:

   
2011
   
2010
 
Research and development
  $ 5,019     $ 7,609  
General and administrative
    3,555       13,365  
Total share-based compensation expense
  $ 8,574     $ 20,974  

At March 31, 2011, 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 $31,416.  The period over which the unearned share-based compensation related to restricted stock awards is expected to be recognized is approximately two years.

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

   
Restricted stock
   
Weighted Average Grant Date Fair Value
 
Outstanding as of December 31, 2010
    95,038     $ 0.95  
Shares granted
    ---       ---  
Shares forfeited/cancelled
    ---       ---  
Shares exercised/issued
    (78,645 )     0.57  
Outstanding as of March 31, 2011
    16,393     $ 2.77  


 
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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 2 million 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 4 million shares, 3 million shares, and 3 million 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, 2011, we had granted options to purchase 6,130,000 shares of Common Stock since the inception of the Incentive Plan, of which 4,376,000 were outstanding at a weighted average exercise price of $1.11 per share and we had granted awards for 1,029,242 shares of restricted stock since the inception of the Incentive Plan, of which 16,393 were outstanding.  As of March 31, 2011, there were 6,580,680 shares that remained available for future grant under our Incentive Plan.


NOTE 14.                      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.


 
- 17 -




NOTE 15.                      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 currently requires a minimum monthly lease obligation of $9,330, which is inclusive of monthly operating expenses, that continues through April 1, 2011 and at such time increases to $9,776, which is inclusive of monthly operating expenses, for the duration of the lease.

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, 2011:

Calendar Years
 
Future Lease Expense
 
  2011 (Nine months)
  $ 94,678  
  2012
    126,236  
  2013
    38,254  
  2014
    8,926  
  2015
    744  
  Total
  $ 268,838  

Rent expense for our operating leases amounted to $28,486 and $33,478 for the three months ended March 31, 2011 and 2010, 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.

 
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Employment Agreements

As of March 31, 2011, 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, 2011, 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 300,000 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 $0.14 (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, 2011, 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 300,000 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.

 
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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, 2011, 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 16.                      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.  The plaintiff, R.C.C. Ventures, LLC, alleges that it is due a fee for its performance in procuring or arranging a loan for the Company.  We deny all allegations of the complaint and any liability to the plaintiff and will vigorously defend against this claim.  We have also made a counterclaim against R.C.C. Ventures, LLC for breach of contract and are seeking monetary damages.


NOTE 17.                      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.






 
- 20 -




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 2010 Annual Report on Form 10-K, referred to as our 2010 Form 10-K, which has been previously filed with the Securities and Exchange Commission on March 31, 2011, 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 involves risks and uncertainties, including the statement that our cash and cash equivalents are sufficient to fund our operations into the third quarter of 2011.  Our actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other risks discussed in our 2010 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 June 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.


 
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Recent Developments

On March 7, 2011, we received a letter from NYSE Amex LLC (the “Exchange”) advising that we were not in compliance with a certain condition of the Exchange’s continued listing standards under Section 1003 of the Exchange’s Company Guide (the “Company Guide”).  In the letter, the Exchange stated that it is concerned that our common stock, as a result of its low selling price, may not be suitable for auction market trading.  Therefore, pursuant to Section 1003(f)(v) of the Company Guide, the Company’s continued listing is predicated on effecting a reverse stock split of its common stock by no later than June 7, 2011.  As a result of the foregoing, we have become subject to the procedures and requirements of Section 1009 of the Company Guide.  We intend to attempt to satisfy the Exchange’s continued listing standards by presenting a proposal and resolution to be voted on by our shareholders, to effect a reverse stock split of our common stock, at our next annual meeting of shareholders, which we will hold on June 1, 2011.  There can be no assurance that our shareholders will approve the proposed reverse stock split or that, if effected, the reverse stock split will allow us to continue to maintain our listing on the Exchange.

On January 19, 2011, we announced the signing of a Binding Letter of Intent with Exciton Technologies Inc. (“Exciton”) to develop and market a product that will combine Altrazeal® with Exciton’s proprietary exSALT Antimicrobial Technology.  Under the terms of the agreement we will be granted a worldwide license, excluding China, to market the Altrazeal® exSALT product.  Exciton will be responsible for conducting the necessary product testing, filing a 510(k) application with the FDA and interacting with the FDA to secure product approval. We will be responsible for product approval in International markets including gaining CE Mark approval.  We will pay Exciton to prepare and prosecute the 510(k) application, milestone payments on the attainment of sales targets and a royalty based on product sales.  The parties have agreed to negotiate a final agreement that will supersede the Binding Letter of Intent.

On January 3, 2011, we entered into a Securities Purchase Agreement with an institutional investor whereby we agreed to sell and issue to the investor the following securities (the “January 2011 Offering”):

 
§ 
5,000,000 shares of our common stock, par value $0.001 per share; and
 
§ 
Warrants to purchase up to 1,750,000 shares of our common stock (the “Warrants”).

The Warrants have an initial exercise price of $0.102 per share, and may be exercised at any time and from time to time on or after July 6, 2011 through and including July 6, 2016.

On January 6, 2011, we closed the January 2011 Offering and received aggregate net proceeds of approximately $412,000 after deducting placement fees and offering expenses payable by us (and excluding any proceeds from exercise of the Warrants).
 
Rodman & Renshaw, LLC acted as our exclusive placement agent and received a placement fee of $35,000 (equal to 7% of the aggregate gross proceeds of the January 2011 Offering) as well as compensation warrants to purchase up to an aggregate of 250,000 shares (equal to 5% of the aggregate number of shares sold in the January 2011 Offering) of our common stock at an exercise price of $0.128 per share (equal to 125% of the then public offering price per share).  The compensation warrants will expire on July 23, 2014 and will otherwise comply with Rule 5110 of the Financial Industry Regulatory Authority.

The offering and sale of the above shares and warrants was made 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 January 5, 2011.






 
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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, 2011 and 2010

Total Revenues

Revenues were $75,171 for the three months ended March 31, 2011, as compared to revenues of $235,230 for the three months ended March 31, 2010, and were comprised of licensing fees of approximately $6,000 from Altrazeal® and OraDisc™ licensing agreements, $13,000 of royalties from the sale of Aphthasol® by our domestic distributor, and Altrazeal® product sales of approximately $56,000.

The first quarter 2011 revenues represent an overall decrease of approximately $160,000 versus the comparative first quarter 2010 revenues.  The decrease in revenues is primarily attributable to a decrease of $138,000 in Aphthasol® product sales as we did not sell any Aphthasol® finished product to our domestic distributor during the first quarter of 2011.  Also affecting the first quarter 2011 revenues was a decrease of $45,000 in Zindaclin® related licensing and royalty fees due to our divestiture of this product in June 2010 and a decrease of $22,000 in OraDisc™ related licensing due to the termination of the licensing and supply agreement with Meldex International in 2010.  These revenue decreases were partially offset by an increase of $34,000 in Altrazeal® product sales, an increase of $5,000 in Altrazeal® licensing fees, and an increase of $6,000 in Aphthasol® royalties from our domestic distributor.

Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2011 was $16,262 and was comprised entirely of costs associated with Altrazeal®.  Cost of goods sold for the three months ended March 31, 2010 was $130,683 and consisted of $126,622 in costs associated with Aphthasol® and $4,061 in costs associated with Altrazeal®.

 
- 23 -



Research and Development

Research and development expenses totaled $273,798 for the three months ended March 31, 2011, including $18,169 in share-based compensation, compared to $285,784 for the three months ended March 31, 2010, which included $31,084 in share-based compensation.  The decrease of approximately $12,000 in research and development expenses was primarily due to lower costs for clinical testing for our wound care technologies of $20,000, regulatory consulting expenses of $8,000, regulatory fees of $13,000, and operating expenses of $4,000.  These expense decreases were partially offset by an increase in direct research costs of $27,000 and scientific personnel costs of $6,000.

The direct research and development expenses for the three months ended March 31, 2011 and 2010 were as follows:

   
Three Months Ended March 31,
 
Technology
 
2011
   
2010
 
  Wound care & nanoparticle
  $ 62,266     $ 7,500  
  OraDisc™
    3,000       1,188  
  Aphthasol® & other technologies
    1,452       30,661  
  Total
  $ 66,718     $ 39,349  


Selling, General and Administrative

Selling, general and administrative expenses totaled $659,093 for the three months ended March 31, 2011, including $27,192 in share-based compensation, compared to $816,888 for the three months ended March 31, 2010, which included $122,948 in share-based compensation.

The decrease of approximately $158,000 in selling, general and administrative expenses was attributable to a decrease of $158,000 in administrative compensation due to reduced share-based compensation and lower head count, lower corporate travel expenses of $19,000, lower accounting fees of $15,000 related to the audit fees for 2010, decreased insurance costs of $9,000, and lower consulting fees of $4,000.  These expense decreases were partially offset by an increase in director fees of $11,000, increased investor relations consulting expenses of $15,000, an increase of $7,000 in compensation for our sales force due to higher head count, and increased legal fees of $14,000 associated with our annual report, proxy statement, and other corporate matters.

 
- 24 -




Amortization of Intangible Assets

Amortization of intangible assets expense totaled $201,968 for the three months ended March 31, 2011 as compared to $246,516 for the three months ended March 31, 2010.  The expense for each period consists primarily of amortization associated with our acquired patents.  The decrease of approximately $44,000 is attributable to our divestiture of the Zindaclin® technology in June 2010.  There were no additional purchases of patents during the three months ended March 31, 2011 and 2010.

Depreciation

Depreciation expense totaled $76,858 for the three months ended March 31, 2011 as compared to $49,990 for the three months ended March 31, 2010.  The increase of approximately $27,000 is attributable to placing certain manufacturing equipment into service in July 2010.

Interest and Miscellaneous Income

Interest and miscellaneous income totaled $4,036 for the three months ended March 31, 2011 as compared to $121 for the three months ended March 31, 2010.  The increase of approximately $4,000 is attributable to an increase in interest income as a result of imputed interest associated with future payments due to us from the divestiture of the Zindaclin® technology in June 2010.

Interest Expense

Interest expense totaled $12,851 for the three months ended March 31, 2011 as compared to $7,988 for the three months ended March 31, 2010.  Interest expense is comprised of financing costs for our insurance policies and interest costs related to regulatory fees.  The increase of approximately $5,000 is attributable to interest costs related to regulatory fees.


 
- 25 -



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, 2011 our cash and cash equivalents were $329,071 which is a decrease of $312,370 as compared to our cash and cash equivalents at December 31, 2010 of $641,441.  Our working capital (current assets less current liabilities) was $558,398 at March 31, 2011 as compared to our working capital at December 31, 2010 of $976,668.

Consolidated Cash Flow Data
   
Three Months Ended March 31,
 
Net Cash Provided by (Used in)
 
2011
   
2010
 
  Operating activities
  $ (724,360 )   $ (589,356 )
  Investing activities
    ---       ---  
  Financing activities
    411,990       857,980  
  Net (Decrease) Increase in cash and cash equivalents
  $ (312,370 )   $ 268,624  


Operating Activities

For the three months ended March 31, 2011, net cash used in operating activities was $724,360.  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.

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

There were no investing activities for the three months ended March 31, 2011 and 2010, respectively.

Financing Activities

For the three month ended March 31, 2011 there was $411,990 in financing activities from the January 2011 Offering.

For the three month ended March 31, 2010 there was $857,980 in financing activities from the February 2010 Offering.
 

 
- 26 -



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 will continue to be in effect as part of our strategic plan for 2011.  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.

As described under - Recent Developments above, on January 6, 2011, we closed the January 2011 Offering and received aggregate net proceeds of approximately $412,000.

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 using our effective shelf registration statement on Form S-3, or through the sale of non-core assets.

We filed a Form S-3 shelf registration statement in July 2009 where we may from time to time sell an indeterminate number of shares of common stock, preferred stock, debt securities or warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities, in one or more offerings up to a total dollar amount of $25 million.  The registration statement was declared effective by the Securities and Exchange Commission on July 23, 2009 (File No. 333-160568).

Management initially utilized this shelf registration statement in connection with an offering in November 2009 by completing a registered direct offering of 10,714,467 shares of our common stock and warrants to purchase up to 5,357,233 shares of our common stock for aggregate gross proceeds of $1.5 million ($1.3 million approximate net proceeds to us).  In February 2010, we completed another offering that constituted our second registered direct offering.  In this offering, we sold 5,000,000 shares of our common stock for aggregate gross proceeds of $1 million ($0.9 million approximate net proceeds to us).  The January 2011 Offering, constituted our third registered direct offering.  In the January 2011 Offering, we sold 5,000,000 shares of our common stock and warrants to purchase up to 1,750,000 shares of our common stock for aggregate gross proceeds of $0.5 million ($0.4 million approximate net proceeds to us).  As of March 31, 2011, approximately $22.0 million remains available under our 2009 shelf registration statement.
 
As of March 31, 2011, we had cash and cash equivalents of approximately $329,000.  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 2011 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 into the third quarter of 2011.  We do not expect any material changes in our capital expenditure spending during 2011.  However, we cannot be sure that our anticipated revenue growth 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 third quarter of 2011, 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, 2011, 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, and separation agreements with a former chief executive officer and our current chief executive officer, 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
  $ 268,838     $ 126,236     $ 135,163     $ 7,439     $ ---  
  Separation agreements
    537,500       250,000       287,500       ---       ---  
  Total contractual cash obligations
  $ 806,338     $ 376,236     $ 422,663     $ 7,439     $ ---  


Off-Balance Sheet Arrangements

As of March 31, 2011, 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, 2010 as filed with the Securities and Exchange Commission on March 31, 2011.  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 into the third quarter of 2011, and other statements, including the Company’s goals, plans and projections regarding its financial position, results of operations, cash flows, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years. The Company has included important factors in the cautionary statements included in its 2010 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, 2011 and December 31, 2010 our cash and cash equivalents totaled $329,071 and $641,441, respectively.  However, because deposits are maintained at these two financial institutions, we do not believe that there is a significant risk of loss of uninsured amounts.  We also invest cash in excess of immediate requirements in money market accounts, certificates of deposit, corporate commercial paper with high quality ratings, and U.S. government securities.  These investments are not held for trading or other speculative purposes.  We are exposed to credit risk in the event of default by these high quality corporations.

Concentration of credit risk with respect to trade accounts receivable are customers with balances that exceed 5% of total consolidated trade accounts receivable at March 31, 2011 and at December 31, 2010.  As of March 31, 2011, six customers exceeded the 5% threshold, each customer with 32%, 8%, 7%, 7%, 7%, and 5%, respectively.  Three customers exceeded the 5% threshold at December 31, 2010, each customer with 56%, 19%, and 6%, respectively.  We believe that the customer accounts are fully collectible as of March 31, 2011.


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, 2011 that have materially affected, or are reasonably likely to material affect, our internal controls over financial reporting.



 
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 Legal Proceedings.

As of the date of this filing, there have been no additional material legal proceedings or material developments in the legal proceedings disclosed in Part I, Item 3, of our 2010 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2011.


 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 2010 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 31, 2011.


Unregistered Sales of Equity Securities and Use of Proceeds.

None.


Defaults Upon Senior Securities.

None.


Removed and Reserved.




Other Information.

None.


 
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Exhibits.

Exhibit Number
 
Description
     
     
     
     
       
   
*
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 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 16, 2011
 
By:
 /s/ Kerry P. Gray
 
   
Kerry P. Gray
   
Chief Executive Officer and President
   
(Principal Executive Officer)
   
   
 Date:  May 16, 2011
 
By:
 /s/ Terrance K. Wallberg
 
   
Terrance K. Wallberg
   
Chief Financial Officer and Vice President
   
(Principal Financial and Accounting Officer)
 

 

 
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