Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 13, 2017)
  • 10-Q (Aug 14, 2017)
  • 10-Q (May 15, 2017)
  • 10-Q (Nov 14, 2016)
  • 10-Q (Aug 15, 2016)
  • 10-Q (May 16, 2016)

 
8-K

 
Other

ULURU INC. 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
form10q_033117.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, 2017

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: 001-336180

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, a smaller reporting company or an emerging growth company. See definition of “accelerated filer”, “large accelerated filer”,  “smaller reporting company” and “emerging growth 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
       
Emerging growth company
 
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act .  o

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

As of May 15, 2017, there were 76,349,431 shares of the registrant’s Common Stock, $0.001 par value per share (“Common Stock”), nil shares of Series A Preferred Stock, $0.001 par value per share, issued and outstanding, and 1,250 shares of Series B Preferred Stock, $0.001 par value per share, issued and outstanding.


 
 

 


ULURU Inc.

INDEX TO FORM 10-Q

For the Three Months Ended MARCH 31, 2017

   
Page
 
     
     
 
 
 
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
     



PART I – FINANCIAL INFORMATION


ITEM 1.
Financial Statements.


ULURU Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
   
March 31, 2017
   
December 31, 2016
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
  $ 5,634,481     $ 36,615  
Accounts receivable, net
    2,941       61,788  
Accounts receivable – related party, net
    129,701       ---  
Inventory
    526,308       559,600  
Prepaid expenses and deferred charges
    71,667       135,394  
Total Current Assets
    6,365,098       793,397  
                 
Property, Equipment and Leasehold Improvements, net
    94,025       126,741  
                 
Other Assets
               
Intangible asset - patents, net
    207,647       216,781  
Intangible asset - licensing rights, net
    3,970,289       3,181,087  
Deposits
    18,069       18,069  
Total Other Assets
    4,196,005       3,415,937  
                 
TOTAL ASSETS
  $ 10,655,128     $ 4,336,075  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities
               
Accounts payable
  $ 2,038,453     $ 2,026,671  
Accrued liabilities
    366,616       315,300  
Accrued interest
    5,479       53  
Promissory note payable, current portion
    ---       20,000  
Deferred revenue, current portion
    5,764       45,764  
Total Current Liabilities
    2,416,312       2,407,788  
                 
Long Term Liabilities
               
Convertible notes payable, net of unamortized debt discount and debt issuance costs
    302,166       ---  
Deferred revenue, net of current portion
    357,040       358,462  
Total Long Term Liabilities
    659,206       358,462  
                 
TOTAL LIABILITIES
    3,075,518       2,766,250  
                 
COMMITMENTS AND CONTINGENCIES
    ---       ---  
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred Stock - $0.001 par value; 20,000 shares authorized;
               
Preferred Stock Series A, 1,000 shares designated; no shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
    ---       ---  
Preferred Stock Series B, 1,250 shares designated; 1,250 and nil shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
    1       ---  
                 
Common Stock - $0.001 par value; 200,000,000 shares authorized;
               
76,349,431 and 62,974,431 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
    76,349       62,974  
Additional paid-in capital
    68,679,999       62,220,850  
Accumulated  (deficit)
    (61,176,739 )     (60,713,999 )
TOTAL STOCKHOLDERS’ EQUITY
    7,579,610       1,569,825  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 10,655,128     $ 4,336,075  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 



ULURU Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


   
Three Months Ended March 31,
 
   
2017
   
2016
 
Revenues
           
License fees
  $ 1,422     $ 101,276  
Product sales, net
    215,695       7,516  
Total Revenues
    217,117       108,792  
                 
Costs and Expenses
               
Cost of goods sold
    81,934       924  
Research and development
    60,129       136,159  
Selling, general and administrative
    394,606       318,801  
Amortization of intangible assets
    89,307       198,636  
Depreciation
    32,716       33,165  
Total Costs and Expenses
    658,692       687,685  
Operating (Loss)
    (441,575 )     (578,893 )
                 
Other Income (Expense)
               
Interest and miscellaneous income
    2       22  
Interest expense
    (21,277 )     (46,758 )
Foreign currency transaction gain
    110       4,286  
Accommodation fee due on promissory note
    ---       (25,000 )
(Loss) Before Income Taxes
    (462,740 )     (646,343 )
                 
Income taxes
    ---       ---  
Net (Loss)
  $ (462,740 )   $ (646,343 )
                 
                 
Basic and diluted net (loss) per common share
  $ (0.01 )   $ (0.02 )
                 
Weighted average number of common shares outstanding
    63,123,042       37,658,932  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 




ULURU Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended March 31,
 
   
2017
   
2016
 
OPERATING ACTIVITIES :
           
Net loss
  $ (462,740 )   $ (646,343 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
                 
Amortization of intangible assets
    89,307       198,636  
Depreciation
    32,716       33,165  
Share-based compensation for stock and options issued to employees
    4,324       11,854  
Share-based compensation for options issued to non-employees
    ---       16,013  
Amortization of debt discount on promissory note
    ---       13,015  
Amortization of deferred financing costs
    ---       9,368  
                 
Change in operating assets and liabilities:
               
Accounts receivable
    (70,854 )     262  
Inventory
    33,292       (5,943 )
Prepaid expenses and deferred charges
    63,727       16,091  
Accounts payable
    11,782       143,948  
Accrued liabilities
    51,316       57,414  
Accrued interest
    5,426       2,239  
Deferred revenue
    (41,422 )     (101,276 )
Total
    179,614       394,786  
                 
Net Cash Used in Operating Activities
    (283,126 )     (251,557 )
                 
INVESTING ACTIVITIES :
               
Net Cash Used in Investing Activities
    ---       ---  
                 
FINANCING ACTIVITIES :
               
Proceeds from issuance of convertible notes and warrant, net
    983,466       ---  
Proceeds from sale of preferred stock, net
    4,917,526       ---  
Proceeds from sale of common stock and warrants, net
    ---       1,398,426  
Offering costs associated with acquisition of licensing rights in 2015
    ---       (14,178 )
Additional principle due on promissory note due to accommodation fee
    ---       25,000  
Proceeds from issuance of promissory notes
    120,000       ---  
Repayment of principle due on promissory notes
    (140,000 )     (135,000 )
Net Cash Provided by Financing Activities
    5,880,992       1,274,248  
                 
Net Increase in Cash
    5,597,866       1,022,691  
                 
Cash,  beginning of period
    36,615       180,000  
Cash,  end of period
  $ 5,634,481     $ 1,202,691  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURE:
               
Cash paid for interest
  $ 2,420     $ 7,577  
                 
Non-cash investing and financing activities:
               
Issuance of common stock for acquisition of licensing rights
  $ 869,375       ---  
Issuance of common stock for principle due on promissory note
    ---     $ 45,000  
Issuance of common stock for interest due on promissory note
    ---     $ 2,239  
Issuance of common stock for services
    ---     $ 36,000  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 


ULURU Inc.

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 specialty medical technology company committed to developing and commercializing a range of innovative wound care and mucoadhesive film products based on our patented Nanoflex® and OraDiscTM technologies, with the goal of improving outcomes for patients, health care professionals, and health care payers.

Basis of Presentation

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 accounts of ULURU Inc., a Nevada corporation, and its wholly-owned subsidiary, Uluru Delaware Inc., a Delaware corporation.  They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of March 31, 2017 and the results of its operations for the three months ended March 31, 2017 and 2016 and cash flows for the three months ended March 31, 2017 and 2016 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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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, 2016, as filed with the Securities and Exchange Commission on April 17, 2017, including the risk factors set forth therein.
 

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, 2017 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, 2016, as filed with the Securities and Exchange Commission on April 17, 2017.
 
 
NOTE 3.
THE EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

There were no new accounting pronouncements adopted or enacted during the periods presented that had, or are expected to have, a material impact on our financial statements.
 
 
 
 
NOTE 4.
SEGMENT INFORMATION

Our entire business is managed by a single management team, which reports to the Chief Executive Officer.  Our corporate headquarters in the United States collects proceeds from product sales, licensing fees, royalties, and sponsored research revenues from our arrangements with external customers and licensees.  Our revenues are currently derived primarily from distribution partners for international activities and our domestic sales activities for our products.

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

Revenues
 
2017
   
%
   
2016
   
%
 
  Domestic
  $ 2,537       1 %   $ 7,516       7 %
  International
    214,580       99 %     101,276       93 %
  Total
  $ 217,117       100 %   $ 108,792       100 %

A significant portion of our revenues are derived from a few major customers.  For the three months ended March 31, 2017, one customer had greater than 10% of total revenues and represented 99% of total revenues.  For the three months ended March 31, 2016, one customer had greater than 10% of total revenues and represented 87% of total revenues.
 

NOTE 5.
INVENTORY

As of March 31, 2017, our inventory was comprised of Altrazeal® finished goods, manufacturing costs incurred in the production of Altrazeal®, and raw materials.  Inventories are stated at the lower of cost (first in, first out method) or net realizable value.  We regularly review inventories on hand and write down the carrying value of our inventories for excess and potentially obsolete inventories based on historical usage and estimated future usage.  In assessing the ultimate realization of our inventories, we are required to make judgments as to future demand requirements.  As actual future demand or market conditions may vary from those projected by us, adjustment to inventories may be required.

The components of inventory, at the different stages of production, consisted of the following at March 31, 2017 and December 31, 2016:

Inventory
 
March 31, 2017
   
December 31, 2016
 
  Raw materials
  $ 35,059     $ 35,800  
  Work-in-progress
    384,084       424,741  
  Finished goods
    107,165       99,059  
  Total
  $ 526,308     $ 559,600  


NOTE 6.
PROPERTY, EQUIPMENT and LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements, net, consisted of the following at March 31, 2017 and December 31, 2016:

Property, equipment and leasehold improvements
 
March 31, 2017
   
December 31, 2016
 
  Laboratory equipment
  $ 424,888     $ 424,888  
  Manufacturing equipment
    1,604,894       1,604,894  
  Computers, office equipment, and furniture
    151,280       151,280  
  Computer software
    4,108       4,108  
  Leasehold improvements
    95,841       95,841  
      2,281,011       2,281,011  
  Less: accumulated depreciation and amortization
    (2,186,986 )     (2,154,270 )
  Property, equipment and leasehold improvements, net
  $ 94,025     $ 126,741  

Depreciation expense on property, equipment and leasehold improvements was $32,716 and $33,165 for the three months ended March 31, 2017 and 2016, respectively.
 




NOTE 7.
INTANGIBLE ASSETS

Patents

Intangible patent assets are comprised of patents acquired in October, 2005.  Intangible assets, net consisted of the following at March 31, 2017 and December 31, 2016:

Intangible assets – patents
 
March 31, 2017
   
December 31, 2016
 
  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
    (7,390,981 )     (7,381,847 )
  Less: reserve for impairment
    (2,027,310 )     (2,027,310 )
  Intangible assets - patents, net
  $ 207,647     $ 216,781  

Amortization expense for intangible patents assets was $9,134 and $118,463 for the three months ended March 31, 2017 and 2016, respectively.

The future aggregate amortization expense for intangible patent assets, remaining as of March 31, 2017, is as follows:

Calendar Years
 
Future Amortization
Expense
 
  2017 (Nine months)
  $ 27,910  
  2018
    37,044  
  2019
    37,044  
  2020
    37,145  
  2021
    37,044  
  2022 & Beyond
    31,460  
  Total
  $ 207,647  

 
Licensing rights

Acquisition of Licensing Rights – 2017

On February 27, 2017, we entered into a Note, Warrant and Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Velocitas Partners, LLC (“Velocitas") and Velocitas I LLC (“Velo LLC”), an entity controlled by Velocitas, with respect to an aggregate financing of up to $6,000,000.

The first closing, which occurred on February 27, 2017, included the purchase by Velocitas at face value of the $500,000 Initial Note, with the Initial Note accruing interest at 12.5% per annum and having a term of two years (subject to acceleration under certain circumstances).
The second closing, which occurred on March 31, 2017, included the purchase by Velocitas at face value the additional $500,000 Second Note, and Velo LLC purchasing 1,250 shares of Series B Convertible Preferred Stock of the Company for gross proceeds of $5,000,000, at an as-converted-to-Common Stock purchase price of $0.04 per share. Also occurring at the second closing was the issuance of a warrant to Velocitas for the purchase of up to 57,055,057 shares of Common Stock (the “Warrant”).  The Warrant has an exercise price of $0.04 per share, a 10-year term and is subject to cashless exercise.

The Initial Note and the Second Note are convertible into shares of Common Stock at a conversion price of $0.04 per share, subject to equitable adjustments, with mandatory conversion of all unpaid principal and interest required on the second anniversary of each Note.  The Initial Note and the Second Note are secured by all of the assets of the Company and its subsidiaries pursuant to a Security Agreement executed at the initial closing.

In addition, at the second closing, the Company acquired the Altrazeal distributor agreements Velocitas had with its sub-distributors in exchange for the issuance of 13,375,000 shares of Common Stock.  The Company has valued the acquisition of Altrazeal distributor agreement from Velocitas at $869,375 based on the closing price of the Company’s Common Stock on March 31, 2017.





Licensing rights, net consisted of the following at March 31, 2017 and December 31, 2016:

Intangible assets - licensing rights
 
March 31, 2017
   
December 31, 2016
 
  Intangible assets – licensing rights, gross
  $ 4,381,881     $ 3,512,506  
  Less: accumulated amortization
    (411,592 )     (331,419 )
  Intangible assets - licensing rights, net
  $ 3,970,289     $ 3,181,087  

Amortization expense for intangible licensing rights assets was $80,173 and $80,173 for the three months ended March 31, 2017 and 2016, respectively.

The future aggregate amortization expense for intangible licensing rights assets, remaining as of March 31, 2017, is as follows:

Calendar Years
 
Future Amortization
Expense
 
  2017 (Nine months)
  $ 313,653  
  2018
    416,303  
  2019
    416,303  
  2020
    416,303  
  2021
    416,303  
  2022 & Beyond
    1,991,424  
  Total
  $ 3,970,289  


NOTE  8.
ACCRUED LIABILITIES

Accrued liabilities consisted of the following at March 31, 2017 and December 31, 2016:

Accrued Liabilities
 
March 31, 2017
   
December 31, 2016
 
  Accrued compensation/benefits
  $ 310,027     $ 274,874  
  Accrued insurance payable
    23,485       40,422  
  Accrued property taxes
    1,350       ---  
  Accrued royalties
    31,754       ---  
  Product rebates/returns
    ---       4  
  Total accrued liabilities
  $ 366,616     $ 315,300  


NOTE 9.
PROMISSORY NOTES PAYABLE

On December 15, 2016, January 18, 2017, and February 16, 2017, we issued Promissory Notes to Velocitas with purchase prices of $20,000, $65,000, and $30,000, respectively.  Each of the Promissory Notes bore interest at the rate of 6.0% per annum with payment of principal and interest due on the earlier of (i) 180 days from the date of issuance, (ii) the date of closing of any debt or equity financing transaction by and between Uluru and Velocitas, or (iii) the payment to Uluru of certain invoices due from selected Company’s distributors.  Each of the Promissory Notes was secured by a pledge of certain product inventory and there were no debt issuance costs incurred by the Company.  On February 27, 2017, each of the Promissory Notes was repaid in connection with the issuance of the Initial Note under the Purchase Agreement with Velocitas.

On February 21, 2017, we issued a promissory note to Kirkwood Investors, Inc. (“Kirkwood”) with a purchase price of $25,000.  The promissory note bears interest at the rate of 6.0% per annum with payment of principal and interest due on the earlier of (i) 60 days from the date of issuance, (ii) the date of closing of any debt or equity financing transaction by Uluru, or (iii) no later than two days after receiving written request by Kirkwood.  The promissory note is secured by a pledge of certain product inventory and accounts receivables and there were no debt issuance costs incurred by the Company.  The Company’s Vice President and Chief Financial Officer, Terrance K. Wallberg, is President and sole shareholder of Kirkwood.  On February 27, 2017, the outstanding promissory note to Kirkwood was repaid in connection with the issuance of the Initial Note under the Purchase Agreement with Velocitas.
 
 
 
NOTE 10.
CONVERTIBLE DEBT

Debt Financing – February and March 2017

On February 27, 2017, the Company entered into a Note, Warrant and Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Velocitas and Velo LLC under which the Company received gross proceeds of $6,000,000, in two closing with the initial closing occurring on February 27, 2017 and the second closing occurring on March 31, 2017 (the “March 2017 Offering”).

The first closing, which occurred on February 27, 2017, included the purchase by Velocitas at face value of the $500,000 Initial Note, with the Initial Note accruing interest at 12.5% per annum and having a term of two years (subject to acceleration under certain circumstances).
The second closing, which occurred on March 31, 2017, included the purchase by Velocitas at face value the additional $500,000 Second Note, and Velo LLC purchasing 1,250 shares of Series B Convertible Preferred Stock of the Company for gross proceeds of $5,000,000, at an as-converted-to-Common Stock purchase price of $0.04 per share.

The Initial Note and the Second Note are convertible into shares of Common Stock at a conversion price of $0.04 per share, subject to equitable adjustments, with mandatory conversion of all unpaid principal and interest required on the second anniversary of each Note.  The Initial Note and the Second Note are secured by all of the assets of the Company and its subsidiaries pursuant to a Security Agreement executed at the initial closing.

The Series B Convertible Preferred Stock that was issued in connection with the second closing, (a) votes together with the Common Stock as a single class (subject to standard protective provisions for the Series B Convertible Preferred Stock), (b) has the same dividend rights as the Common Stock, (c) has a liquidation preference equal to the greater of its purchase price and its as converted-to-Common Stock value, (d) automatically converts into Common Stock if the number of authorized shares of Common Stock is increased within 190 days of the second closing as necessary to permit all outstanding convertible or exercisable securities (including the Series B Convertible Preferred Stock) to convert to Common Stock, and (e) is convertible into Common Stock at the discretion of the holder, subject to the availability of authorized shares.

As a condition of the March 2017 Offering, the Company issued to Velocitas at the second closing a warrant to purchase up to 57,055,057 shares of Common Stock (the “Warrant”).  The Warrant has an exercise price of $0.04 per share, a 10-year term and is subject to cashless exercise. In addition, at the second closing, the Company acquired the Altrazeal distributor agreements Velocitas had with its sub-distributors in exchange for the issuance of 13,375,000 shares of Common Stock.

In addition, the Company, Velocitas, Velo LLC, and certain affiliates signed a Voting Agreement (the “Voting Agreement”) pursuant to which the parties agreed to set the size of the Board of Directors at six directors, and agreed to vote for the election to the Board of Directors of four persons designated by Velocitas (initially to be Anish Shah, Oksana Tiedt, Vaidehi Shah and Arindam Bose), one director designated by Bradley J. Sacks and one additional director designated by a major investor or by the Board of Directors.  In addition, the parties to the Voting Agreement have agreed to vote in favor of a proposal to amend the Company’s articles of incorporation to increase the authorized shares as required to permit the conversion of the Series B Convertible Preferred Stock.

In addition, the Company, Velocitas, Velo LLC, and certain affiliates entered into an Investor Rights Agreement (the “Investor Rights Agreement”) that provides the parties thereto with demand Form S-3 and piggy back registration rights, Rule 144 information rights, and right of first offer (or preemptive rights) in connection with future sales of securities by the Company (subject to standard exceptions).  The Investor Rights Agreement includes indemnification obligations associated with the registration rights.  Michael I. Sacks and Bradley Sacks and affiliates are parties to the Investor Rights Agreement, in part in exchange for the termination by certain of such persons and The Punch Trust of a Registration Rights Agreement dated as of January 31, 2014.

As required by the Purchase Agreement, at the initial closing, the Company appointed Ms. Vaidehi Shah to serve as the Company’s Chief Executive Officer and to also serve as a member of the Company’s Board of Directors.  Concurrent with the initial closing and as a condition of the March 2017 Offering, the Company received resignation notices from Helmut Kerschbaumer, the Company’s Interim President, Chief Executive and Director, and Klaus Kuehne, a member of the Company’s Board of Directors.

As required by the Purchase Agreement, at the second closing, the Company appointed Mr. Anish Shah and Ms. Oksana Tiedt to join the Company and to serve as part of the Company’s executive management team and together with Mr. Arindam Bose to join the Company’s Board of Directors.

Concurrent with the second closing and as a condition of the Financing, the Company received resignation notices from Robert F. Goldrich and Terrance K. Wallberg, each being a member of the Company’s Board of Directors.  Mr. Wallberg continues to serve as the Company’s Vice President, Chief Financial Officer, Secretary, and Treasurer.  Also occurring at the second closing, Mr. Bradley J. Sacks stepped down as Chairman of the Board of Directors and Ms. Vaidehi Shah, the Company’s Chief Executive Officer and Director, assumed such duties.  Mr. Sacks continues to serve as a Director of the Company.

 
- 10 -


Using specific guidelines in accordance with U.S. GAAP, we allocated the value of the proceeds received to the promissory note and to the warrant on a relative fair value basis.  We calculated the fair value of the warrant issued with the debt 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 of the warrant was recorded as a debt discount and is being amortized over the expected term of the promissory note to interest expense.
 
Information relating to the February 2017 Note and the March 2017 Note is as follows:

                             
As of March 31, 2017
 
Transaction
 
Initial Principal
Amount
   
Interest
Rate
 
Maturity
Date
 
Conversion Price
   
Principal
Balance
   
Unamortized Debt Discount
   
Unamortized Debt Issuance Costs
   
Carrying
Value
 
  February 2017 Note
  $ 500,000       12.5 %
02/27/2019
  $ 0.04     $ 500,000     $ 340,650     $ 8,267     $ 151,083  
  March 2017 Note
  $ 500,000       12.5 %
03/31/2019
  $ 0.04     $ 500,000     $ 340,650     $ 8,267     $ 151,083  
  Total
  $ 1,000,000                       $ 1,000,000     $ 681,300     $ 16,534     $ 302,166  


As part of the February 2017 Note and the March 2017 Note, at the holder’s option, all unpaid principle and interest due under each convertible promissory note may be converted into shares of Common Stock based on a conversion price of $0.04 per share.  The February 2017 Note and the March 2017 Note matures on February 27, 2019 and March 31, 2019, respectively, and on each maturity date each convertible promissory note, and accrued interest thereon, is subject to mandatory conversion based on a conversion price of $0.04 per share.

The amount of interest cost recognized from our promissory notes and our convertible debt was $6,176 and $8,226 for the three months ended March 31, 2017 and 2016, respectively.

The amount of debt discount amortized from our promissory note and our convertible debt was nil and $13,015 for the three months ended March 31, 2017 and 2016, respectively.

The amount of debt issuance costs amortized from our promissory note was nil and $9,368 for the three months ended March 31, 2017 and 2016, respectively.

 
NOTE 11.
EQUITY TRANSACTIONS

Preferred Stock Transaction

March 2017 Offering

On February 27, 2017, the Company entered into a Note, Warrant and Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Velocitas and Velo LLC under which the Company received gross proceeds of $6,000,000, in two closing with the initial closing occurring on February 27, 2017 and the second closing occurring on March 31, 2017 (the “March 2017 Offering”).

The second closing included, amongst other transaction components, the purchase by Velo LLC of 1,250 shares of Series B Convertible Preferred Stock of the Company for $5,000,000.

Refer to a description in greater detail of the financing event with Velocitas and Velo LLC in Note 10. Convertible Debt.
 
Common Stock Transaction

March 2016 Offering

On March 29, 2016, we entered into a Stock Purchase Agreement with fifteen investors for the offer and sale of 25,245,442 shares of Common Stock and warrants to purchase an additional 25,245,442 shares of Common Stock at a purchase price of $0.0713 per unit, with each unit consisting of one share and one warrant to purchase Common Stock, for an aggregate purchase price of $1,800,000 (the “March 2016 Offering).  The issue price of the shares sold was based on a 10% discount to the average closing price between March 7, 2016 and March 11, 2016 and the warrant exercise price was based on a 10% premium to the same average closing price.  The warrants have an exercise price of $0.0871 per share and a five-year term.  The warrants also include cashless exercise provisions and a “full ratchet” anti-dilution provision under which the exercise price of such warrants resets to any lower sales price at which the Company offers or sells Common Stock or Common Stock equivalents for one year (subject to standard exceptions).
 
 
 
- 11 -


As of the date of this Report, the March 2016 Offering has resulted in gross proceeds of $1,800,000, of which $1,439,000 was received in March 2016 and $361,000 was received in April 2016.  As part of the offering expenses, we paid to a European placement agent a referral fee of $26,000 which is equal to 10% of the gross proceeds, provided that the investors referred by such placement agent are not U.S. Persons and were solicited outside the United States.

Purchasers in the March 2016 Offering include Michael I. Sacks ($1,000,000), the father of Bradley J. Sacks, the former Chairman of our Board of Directors, Centric Capital Ventures, LLC ($19,000), an investment entity controlled by Bradley J. Sacks, Terrance K. Wallberg ($50,000), our Vice President and Chief Financial Officer, and Daniel G. Moro ($10,000), our Vice President of Polymer Drug Delivery.

NOTE 12.
STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2017, we had 76,349,431 shares of Common Stock issued and outstanding.  For the three months ended March 31, 2017, we issued 13,375,000 shares of Common Stock to Velocitas for the acquisition of licensing rights.

Preferred Stock

As of March 31, 2017, we had no shares of Series A Preferred Stock (the “Series A Shares”) issued and outstanding.  For the three months ended March 31, 2017, we did not issue or redeem any Series A Shares.

As of March 31, 2017, we had 1,250 shares of Series B Preferred Stock (the “Series B Shares”) issued and outstanding.  For the three months ended March 31, 2017, we issued 1,250 Series B Shares to Velocitas and did not redeem any Series B Shares.

Warrants

The following table summarizes the warrants outstanding and the number of shares of Common Stock subject to exercise as of March 31, 2017 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, 2016
    26,179,560     $ 0.11  
Warrants issued
    57,055,057     $ 0.04  
Warrants exercised
    ---       ---  
Warrants cancelled
    ---       ---  
Balance as of March 31, 2017
    83,234,617     $ 0.06  

For the three months ended March 31, 2017, we issued a warrant to purchase up to an aggregate of 57,055,057 shares of our Common Stock at an exercise price of $0.04 per share pursuant to the March 2017 Offering.

Of the warrant shares subject to exercise as of March 31, 2017, expiration of the right to exercise is as follows:

Date of Expiration
 
Number of Warrant Shares of Common Stock Subject to Expiration
 
  March 14, 2018
    660,000  
  January 15, 2019
    80,000  
  April 30, 2020
    194,118  
  March 30, 2021
    25,245,442  
  March 31, 2027
    57,055,057  
  Total
    83,234,617  


 
- 12 -



NOTE 13.
EARNINGS PER SHARE

Basic and Diluted Net Loss Per Share

In accordance with the Financial Accounting Standards Board (“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, 2017 and December 31, 2016:

   
March 31, 2017
   
December 31, 2016
 
Warrants to purchase Common Stock
    83,234,617       26,179,560  
Stock options to purchase Common Stock
    578,403       691,237  
Common stock issuable upon the assumed conversion of  our convertible promissory notes (1)
    31,250,000       ---  
Common stock issuable upon the assumed conversion of  our Series B preferred stock (2)
    125,000,000       ---  
  Total
    240,063,020       26,870,797  

(1)
As part of the February 2017 Note and the March 2017 Note, at the holder’s option, all unpaid principle and interest due under each convertible promissory note may be converted into shares of Common Stock based on a conversion price of $0.04 per share.  The February 2017 Note and the March 2017 Note matures on February 27, 2019 and March 31, 2019, respectively, and on each maturity date each convertible promissory note, and accrued interest thereon, is subject to mandatory conversion based on a conversion price of $0.04 per share.  For the purposes of this Table, we have assumed that all outstanding principal and interest will be converted on each applicable maturity date.
(2)
Pursuant to the March 2017 Offering, Velo LLC purchased 1,250 shares of Series B Convertible Preferred Stock of the Company for $5,000,000.  The Series B Convertible Preferred Stock that was issued in the March 2017 Offering, (a) votes together with the Common Stock as a single class (subject to standard protective provisions for the Series B Convertible Preferred Stock), (b) has the same dividend rights as the Common Stock, (c) has a liquidation preference equal to the greater of its purchase price and its as converted-to-Common Stock value, (d) automatically converts into Common Stock if the number of authorized shares of Common Stock is increased within 190 days of the second closing as necessary to permit all outstanding convertible or exercisable securities (including the Series B Convertible Preferred Stock) to convert to Common Stock, and (e) is convertible into Common Stock  at the discretion of the holder, subject to the availability of authorized shares, at an as-converted-to-Common Stock purchase price of $0.04 per share.






 
- 13 -



NOTE 14.
SHARE BASED COMPENSATION

The Company’s share-based compensation plan, the 2006 Equity Incentive Plan, as amended (“Equity Incentive Plan”), is administered by 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.

Our Board did not grant any incentive stock option awards to executives or employees or any nonstatutory stock option awards to directors or non-employees for the three months ended March 31, 2017 and 2016, respectively.

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.

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,
 
   
2017
   
2016
 
Research and development
  $ 1,663     $ 8,670  
Selling, general and administrative
    2,661       19,197  
  Total share-based compensation expense
  $ 4,324     $ 27,867  

As of March 31, 2017, 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 $8,500.  The period over which the unearned share-based compensation is expected to be recognized is approximately six months.

The following table summarizes the stock options outstanding and the number of shares of Common Stock subject to exercise as of March 31, 2017 and the changes therein during the three months then ended:

   
Stock Options
   
Weighted Average Exercise Price per Share
 
Outstanding as of December 31, 2016
    691,237     $ 1.94  
Granted
    ---       ---  
Forfeited/cancelled
    (112,834 )   $ 2.13  
Exercised
    ---       ---  
Outstanding as of March 31, 2017
    578,403     $ 1.91  


 
- 14 -



The following table presents the stock option grants outstanding and exercisable as of March 31, 2017:

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
 
  340,000     $ 0.33       6.0       340,000     $ 0.33  
  215,000       1.15       7.5       215,000       1.15  
  23,403       31.75       1.0       23,403       31.75  
  578,403     $ 1.91       6.3       578,403     $ 1.91  


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.

For the three months ended March 31, 2017 and 2016, we did not grant any restricted stock awards.

Summary of Plans

2006 Equity Incentive Plan

In March 2006, our Board adopted and our stockholders approved our Equity 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, June 15, 2010, June 14, 2012, June 13, 2013, and on June 5, 2014, our stockholders approved amendments to the Equity Incentive Plan to increase the total number of shares of Common Stock issuable under the Equity Incentive Plan pursuant to stock options and other equity awards by 266,667 shares, 200,000 shares, 200,000 shares, 400,000 shares, 600,000 shares, and 1,000,000 shares, respectively, to a total of 2,800,000 shares.

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, 2017, we had granted options to purchase 2,061,167 shares of Common Stock since the inception of the Equity Incentive Plan, of which 578,403 were outstanding at a weighted average exercise price of $1.91 per share, and we had granted awards for 68,616 shares of restricted stock since the inception of the Equity Incentive Plan, of which none were outstanding.  As of March 31, 2017, there were 2,152,151 shares that remained available for future grants under our Equity Incentive Plan.


NOTE 15.
FAIR VALUE MEASUREMENTS

In accordance with FASB 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.

 
- 15 -

 
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 promissory 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, 2017 and December 31, 2016.

Description
 
March 31, 2017
   
December 31, 2016
 
  Liabilities:
           
  Convertible promissory note – March 2017
  $ 500,000       ---  
  Convertible promissory note – February 2017
  $ 500,000       ---  
  Promissory note – December 2016
    ---     $ 20,000  
  Total
  $ 1,000,000     $ 20,000  

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 promissory notes and our convertible promissory note balances approximates fair value based on a valuation methodology using the income approach and a discounted cash flow model.


NOTE 16.
INCOME TAXES

For the quarter ended March 31, 2017, the Company incurred a consolidated tax loss of approximately $558,000.

As of March 31, 2017, the Company has consolidated net operating loss carryforwards (“NOL”) and research credit carryforwards for income tax purposes of approximately $57,010,000 and $555,000 respectively. The Company has provided a full valuation allowance for all of its deferred tax assets. As a result, the effective tax rate is zero and the net deferred tax assets are zero.


NOTE 17.
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 originally continued until April 1, 2013.  The lease required a minimum monthly lease obligation of $9,330, which was inclusive of monthly operating expenses, until April 1, 2011 and at such time increased to $9,776, which was inclusive of monthly operating expenses.  On February 22, 2013, we executed an Amendment to Lease Agreement (the “Lease Amendment”) that renewed and extended our lease until March 31, 2015.  The Lease Amendment required a minimum monthly lease obligation of $9,193, which was inclusive of monthly operating expenses, until March 31, 2014 and at such time, increased to $9,379, which was inclusive of monthly operating expenses.  On March 17, 2015, we executed a Second Amendment to Lease Agreement (the “Second Amendment”) that renewed and extended our lease until March 31, 2018.  The Second Amendment requires a minimum monthly lease obligation of $9,436, which is inclusive of monthly operating expenses.

On January 16, 2015 we entered into a lease agreement for certain office equipment.  The office equipment lease, that commenced on February 1, 2015 and continues until February 1, 2018, requires a minimum lease obligation of $551 per month.

 
- 16 -


The future minimum lease payments under the 2015 office lease and the 2015 equipment lease are as follows as of March 31, 2017:

Calendar Years
 
Future Lease Expense
 
  2017 (Nine months)
  $ 90,031  
  2018
    28,908  
  2019
    ---  
  2020
    ---  
  Total
  $ 118,939  

Rent expense for our operating leases amounted to $32,348 and $29,960 for the three ended March 31, 2017 and 2016, respectively.

Indemnification

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.  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.


Related Party Transactions and Concentration

Note, Warrant and Preferred Stock Purchase Agreement

On February 27, 2017, we entered into the Purchase Agreement with Velocitas and Velo LLC, an entity controlled by Velocitas, with respect to an aggregate financing of up to $6,000,000.

Refer to a description in greater detail of the financing event with Velocitas and Velo LLC in Note 10. Convertible Debt.

On March 31, 2017, the second closing of the Purchase Agreement included, amongst other transaction components, the Company acquiring the Altrazeal distributor agreements Velocitas had with its sub-distributors in exchange for the issuance of 13,375,000 shares of Common Stock.  The Company has valued the acquisition of Altrazeal distributor agreement from Velocitas at $869,375 based on the closing price of the Company’s Common Stock on March 31, 2017.

For the three months ended March 31, 2017 and 2016, the Company recorded revenues, in approximate numbers, of $215,000 and nil, respectively, with Velocitas GmbH, an affiliated entity of Velocitas, which represented 99% and 0% of our total revenues, respectively.  As of March 31, 2017 and December 31, 2016, Velocitas GmbH had an outstanding net accounts receivable, in approximate numbers, of $130,000 and nil, respectively, which represented 98% and 0% of our net outstanding accounts receivables.

Temporary Advances

On December 15, 2016, January 18, 2017, and February 16, 2017, we issued Promissory Notes to Velocitas with purchase prices of $20,000, $65,000, and $30,000, respectively.  Each of the Promissory Notes bore interest at the rate of 6.0% per annum with payment of principal and interest due on the earlier of (i) 180 days from the date of issuance, (ii) the date of closing of any debt or equity financing transaction by and between Uluru and Velocitas, or (iii) the payment to Uluru of certain invoices due from selected Company’s distributors.  Each of the Promissory Notes was secured by a pledge of certain product inventory and there were no debt issuance costs incurred by the Company.  On February 27, 2017, each of the Promissory Notes was repaid in connection with the issuance of the Initial Note under the Purchase Agreement with Velocitas.

On February 21, 2017, we issued a promissory note to Kirkwood Investors, Inc. (“Kirkwood”) with a purchase price of $25,000.  The promissory note bears interest at the rate of 6.0% per annum with payment of principal and interest due on the earlier of (i) 60 days from the date of issuance, (ii) the date of closing of any debt or equity financing transaction by Uluru, or (iii) no later than two days after receiving written request by Kirkwood.  The promissory note is secured by a pledge of certain product inventory and accounts receivables and there were no debt issuance costs incurred by the Company.  The Company’s Vice President and Chief Financial Officer, Terrance K. Wallberg, is President and sole shareholder of Kirkwood.  On February 27, 2017, the outstanding promissory note to Kirkwood was repaid in connection with the issuance of the Initial Note under the Purchase Agreement with Velocitas.

 
- 17 -

 
Related Party Obligations

Since 2011, our named executive officers and certain key executives have temporarily deferred portions of their compensation as part of a plan to conserve and manage the Company’s cash and financial resources.

As of March 31, 2017, the following table summarizes the amounts recognized in the Company’s financial statements related to obligations for compensation temporarily deferred by our employees.

Name
 
2017
   
2016
   
2015
      2014 – 2011    
Total
 
  Kerry P. Gray (1) (2) (3) (4)
  $ ---     $ ---     $ 275,153     $ 150,000     $ 425,153  
  Terrance K. Wallberg
    23,334       (5,207 )     53,540       ---       71,667  
  Other employees
    ---       (54,871 )     54,871       ---       ---  
  Total
  $ 23,334     $ (60,078 )   $ 383,564     $ 150,000     $ 496,820  

  (1)
On November 19, 2015, Mr. Gray resigned as the Company’s President and Chief Executive Officer and on February 18, 2016 resigned as a director for the Company.
  (2)
The Company is asserting in a dispute with Mr. Gray that certain amounts recorded as being owed to Mr. Gray are not in fact owed to Mr. Gray or are offset by amounts Mr. Gray owes to the Company.
  (3)
During 2015, Mr. Gray temporarily deferred compensation of $275,153 which consisted of $51,770 earned as salary compensation for his duties as President of the Company, $186,083 for his duties as Chairman of the Executive Committee of the Company’s Board of Directors, and $37,300 as a temporary advance of working capital.
  (4)
During 2014, Mr. Gray temporarily deferred compensation of $150,000 which consisted of $62,500 earned as salary compensation for his duties as President of the Company and $87,500 for his duties as Chairman of the Executive Committee of the Company’s Board of Directors.  During 2014, Mr. Gray was also repaid $269,986 of temporarily deferred compensation, of which $100,000 was used by Mr. Gray for funding required pursuant to a Securities Purchase Agreement, dated March 14, 2013 (the “March 2013 Offering”).  Prior to 2014, over a three year period Mr. Gray temporarily deferred, at various times, aggregate compensation of $582,486 and during the same time period was also repaid $312,500 of temporarily deferred compensation, of which $300,000 was used by Mr. Gray for funding required pursuant to the March 2013 Offering.

As of March 31, 2017, the Company has recognized an obligation for temporarily deferred compensation of $496,820 of which $223,237 was included in accrued liabilities and $273,583 was included in accounts payable, respectively.

As of December 31, 2016, the Company has recognized an obligation for temporarily deferred compensation of $473,486 of which $199,903 was included in accrued liabilities and $273,583 was included in accounts payable, respectively.

Contingent Milestone Obligations

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, 2017, 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.  As of March 31, 2017, the Company has accrued $31,754 of expense relating to future milestone payments to Access.

On March 7, 2008, we 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.

Prescription Drug User Fee Obligation

The Company was assessed prescription drug user fees (“PDUFA”) of approximately $535,000 by the United States Department of Health and Human Services (the “DHHS”) for the sale and manufacture of Aphthasol® from 2009 to 2012.  The Company had contested the assessments as it believed such fees should be waived because the Company should qualify for abatement of the PDUFA fees.  However, the Company’s challenge has been denied by the DHHS.  As of March 31, 2017, the Company has accrued potential penalties and interest of approximately $506,000 related to the unpaid PDUFA fees.  The PDUFA fees remain unpaid as of the date of this Report.  Since the Company has not yet reached a settlement with the DHHS, it is possible that the Company may be subject to additional collection costs.

 
- 18 -




NOTE 18.
LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to us or our consolidated subsidiary or has a material interest adverse thereto; however, one or more events may lead to a formal dispute or proceeding in the future.


NOTE 19.
SUBSEQUENT EVENTS

None.




 
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ITEM 2.
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 Annual Report on Form 10-K for the year ended December 31, 2016, referred to as our 2016 Form 10-K, which has been previously filed with the Securities and Exchange Commission on April 17, 2017, 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.  Our actual results could differ materially from those anticipated by such forward-looking information due to competitive factors and other risks discussed in our 2016 Form 10-K under “Risks Associated with our Business”.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (including documents incorporated by reference) (this “Report”) and other written and oral statements the Company makes from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  You can identify these forward-looking statements by the fact that they do not relate strictly to historical or current facts,  Forward-looking statements may include words such as “should”, “expect”, “anticipate”, “estimate”, “target”, “may”, “project”, “guidance”, “will”, “intend”, “plan”, “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company’s goals, plans and projections regarding its financial position, statements indicating that the Company has cash and cash equivalents sufficient to fund our operations in the future, statements regarding expected cash flows, market position, product development, product approvals, increases in revenue, expense levels, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, acquisitions, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years.
 
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.  We undertake no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.


Business Overview

ULURU Inc. (together with our subsidiaries, “we”, “our”, “us”, “ULURU” or the “Company”) is a Nevada corporation.  We are a specialty medical technology company committed to developing and commercializing a range of innovative wound care and muco-adhesive film products based on our patented Nanoflex® and OraDiscTM technologies, with the goal of improving outcomes for patients, health care professionals and payers.

Utilizing these two platform technologies, a number of products were developed of which one is being actively marketed in the wound care market. This product, Altrazeal® Transforming Powder Dressing (“Altrazeal®”), based on our Nanoflex® technology, has the potential to change the way health care providers approach wound treatment.   Altrazeal® is indicated for both exuding acute wounds such as partial thickness burns, donor sites, non-healing surgical wounds, and trauma and for chronic wounds such as venous leg ulcers, diabetic foot ulcers, and pressure ulcers. Altrazeal® is registered for sale with the United States Food and Drug Administration (the “FDA”), the European Union (the “EU”) and a number of other international markets.

Our current strategy is to primarily focus on the commercialization of Altrazeal® and to establish a strong leadership position in wound management by developing and commercializing a customer focused portfolio of innovative wound care products.  We will also evaluate the potential for commercialization of the other products as well as explore strategic collaborations to further develop our oral mucoadhesive film technology (OraDiscTM) for systemic drug delivery and for delivery of actives to the oral cavity.

We will also continue to execute a series of operational plans to enhance and streamline our business. We are restructuring our operations to improve efficiency and reduce cost, including production, distribution, and administration costs. We are also undertaking efforts to stimulate sales, enhance marketing, and expedite regulatory approvals for new market entry of Altrazeal®.


 
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Recent Developments

Debt Financing and Preferred Stock Offering – March 2017

On February 27, 2017, the Company entered into a Note, Warrant and Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Velocitas Partners, LLC (“Velocitas") and Velocitas I LLC (“Velo LLC”), an entity controlled by Velocitas, under which the Company received gross proceeds of $6,000,000, in two closing with the initial closing occurring on February 27, 2017 and the second closing occurring on March 31, 2017 (the “March 2017 Offering”).

The first closing, which occurred on February 27, 2017, included the purchase by Velocitas at face value of the $500,000 Initial Note, with the Initial Note accruing interest at 12.5% per annum and having a term of two years (subject to acceleration under certain circumstances).
The second closing, which occurred on March 31, 2017, included the purchase by Velocitas at face value the additional $500,000 Second Note, and Velo LLC purchasing 1,250 shares of Series B Convertible Preferred Stock of the Company for gross proceeds of $5,000,000, at an as-converted-to-Common Stock purchase price of $0.04 per share.

The Initial Note and the Second Note are convertible into shares of Common Stock at a conversion price of $0.04 per share, subject to equitable adjustments, with mandatory conversion of all unpaid principal and interest required on the second anniversary of each Note.  The Initial Note and the Second Note are secured by all of the assets of the Company and its subsidiaries pursuant to a Security Agreement executed at the initial closing.

The Series B Convertible Preferred Stock that was issued in connection with the second closing, (a) votes together with the Common Stock as a single class (subject to standard protective provisions for the Series B Convertible Preferred Stock), (b) has the same dividend rights as the Common Stock, (c) has a liquidation preference equal to the greater of its purchase price and its as converted-to-Common Stock value, (d) automatically converts into Common Stock if the number of authorized shares of Common Stock is increased within 190 days of the second closing as necessary to permit all outstanding convertible or exercisable securities (including the Series B Convertible Preferred Stock) to convert to Common Stock, and (e) is convertible into Common Stock at the discretion of the holder, subject to the availability of authorized shares.

As a condition of the March 2017 Offering, the Company issued to Velocitas at the second closing a warrant to purchase up to 57,055,057 shares of Common Stock (the “Warrant”).  The Warrant has an exercise price of $0.04 per share, a 10-year term and is subject to cashless exercise. In addition, at the second closing, the Company acquired the Altrazeal distributor agreements Velocitas had with its sub-distributors in exchange for the issuance of 13,375,000 shares of Common Stock.
 
In addition, the Company, Velocitas, Velo LLC, and certain affiliates signed a Voting Agreement (the “Voting Agreement”) pursuant to which the parties agreed to set the size of the Board of Directors at six directors, and agreed to vote for the election to the Board of Directors of four persons designated by Velocitas (initially to be Anish Shah, Oksana Tiedt, Vaidehi Shah and Arindam Bose), one director designated by Bradley J. Sacks and one additional director designated by a major investor or by the Board of Directors.  In addition, the parties to the Voting Agreement have agreed to vote in favor of a proposal to amend the Company’s articles of incorporation to increase the authorized shares as required to permit the conversion of the Series B Convertible Preferred Stock.

In addition, the Company, Velocitas, Velo LLC, and certain affiliates entered into an Investor Rights Agreement (the “Investor Rights Agreement”) that provides the parties thereto with demand Form S-3 and piggy back registration rights, Rule 144 information rights, and rights of first offer (or preemptive rights) in connection with future sales of securities by the Company (subject to standard exceptions).  The Investor Rights Agreement includes indemnification obligations associated with the registration rights.  Michael I. Sacks and Bradley Sacks and affiliates are parties to the Investor Rights Agreement, in part in exchange for the termination by certain of such persons and The Punch Trust of a Registration Rights Agreement dated as of January 31, 2014.

As required by the Purchase Agreement, at the initial closing, the Company appointed Ms. Vaidehi Shah to serve as the Company’s Chief Executive Officer and to also serve as a member of the Company’s Board of Directors.  Concurrent with the initial closing and as a condition of the March 2017 Offering, the Company received resignation notices from Helmut Kerschbaumer, the Company’s Interim President, Chief Executive and Director, and Klaus Kuehne, a member of the Company’s Board of Directors.

As required by the Purchase Agreement, at the second closing, the Company appointed Mr. Anish Shah and Ms. Oksana Tiedt to join the Company and to serve as part of the Company’s executive management team and together with Mr. Arindam Bose to join the Company’s Board of Directors.
 
Concurrent with the second closing and as a condition of the Financing, the Company received resignation notices from Robert F. Goldrich and Terrance K. Wallberg, each being a member of the Company’s Board of Directors.  Mr. Wallberg continues to serve as the Company’s Vice President, Chief Financial Officer, Secretary, and Treasurer.  Also occurring at the second closing, Mr. Bradley J. Sacks stepped down as Chairman of the Board of Directors and Ms. Vaidehi Shah, the Company’s Chief Executive Officer and Director, assumed such duties.  Mr. Sacks continues to serve as a Director of the Company.

 
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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, 2017 and 2016

Total Revenues

Revenues were approximately $217,000 for the three months ended March 31, 2017, as compared to revenues of approximately $109,000 for the three months ended March 31, 2016, and were composed of, in approximate amounts, licensing fees of $1,000 from a OraDisc™ licensing agreement and product sales of $216,000 for Altrazeal®.

The increase of $108,000 in revenues is primarily attributable to an increase of approximately $208,000 in international Altrazeal® product sales.  The revenue increase was partially offset by a decrease of $100,000 in licensing fees due to the one-time recognition in the first quarter of 2016 of unamortized licensing fees related to the cancellation by the Company of the licensing agreement with Altrazeal AG.

Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2017 and 2016 were approximately $82,000 and $1,000, respectively, and were comprised entirely of costs associated with Altrazeal®.

Research and Development

Research and development expenses totaled approximately $60,000 for the three months ended March 31, 2017, including $2,000 in share-based compensation, compared to approximately $136,000 for the three months ended March 31, 2016, which included $9,000 in share-based compensation.  The decrease of approximately $76,000 in research and development expenses was primarily due to, in approximate numbers, a decrease of $8,000 direct research costs primarily related to consulting costs and product registration costs and a decrease of $70,000 in scientific compensation related wage reductions by existing staff, lower head-count, and lower share-based compensation.  These expense decreases were partially offset by an increase of $2,000 in regulatory fees.

The direct research and development expenses for the three months ended March 31, 2017 and 2016 were, in approximate numbers, as follows:

   
Three Months Ended March 31,
 
Technology
 
2017
   
2016
 
  Wound care & nanoparticle
  $ 4,000     $ 13,000  
  OraDisc™
    5,000       4,000  
  Aphthasol® & other technologies
    ---       ---  
  Total
  $ 9,000     $ 17,000  


Selling, General and Administrative

Selling, general and administrative expenses totaled approximately $395,000 for the three months ended March 31, 2017, including $19,000 in share-based compensation, compared to approximately $319,000 for the three months ended March 31, 2016, which included $19,000 in share-based compensation.  The increase of approximately $76,000 in selling, general and administrative expenses was primarily due to, in approximate numbers, an increase of $90,000 in costs associated with marketing and promotion of Altrazeal®, an increase of $32,000 in royalty expenses associated with product sales, an increase of $30,000 in consulting costs for product marketing, an increase of $13,000 in clinical training for the use of Altrazeal®, an increase of $12,000 in corporate travel, and an increase of $4,000 in other miscellaneous expenses.  These expense increases were partially offset by, in approximate numbers, a decrease of $46,000 in travel costs associated with product marketing, a decrease of $18,000 in investor relations consulting, a decrease of $18,000 in bad debt accruals, a decrease of $15,000 in share-based director fee compensation, a decrease of $8,000 in other miscellaneous expenses.

 
- 22 -

 
Amortization of Intangible Assets

Amortization of intangible assets expense totaled approximately $89,000 for the three months ended March 31, 2017 as compared to approximately $199,000 for the three months ended March 31, 2016.  The expense for each period consists primarily of amortization associated with our acquired patents and licensing rights.  The decrease of approximately $110,000 is attributable to the impairment in 2016 of two patents; “Amlexanox (OraDisc™ A)” and “OraDisc™”.  We purchased additional licensing rights of approximately $869,000 from Velocitas during the three months ended March 31, 2017.

Depreciation

Depreciation expense totaled approximately $33,000 for the three months ended March 31, 2017 as compared to approximately $33,000 for the three months ended March 31, 2016.
 
Interest and Miscellaneous Income

Interest and miscellaneous income totaled approximately $2 for the three months ended March 31, 2017 as compared to approximately $22 for the three months ended March 31, 2016.

Interest Expense

Interest expense totaled approximately $21,000 for the three months ended March 31, 2017 as compared to approximately $47,000 for the three months ended March 31, 2016.  Interest expense typically includes financing costs for our insurance policies, interest costs related to regulatory fees, and interest costs and amortization of debt discount and financing costs related to debt.  The decrease of approximately $26,000 in interest expense is primarily attributable to the final payoff in August 2016 of the April 2015 Note with Inter-Mountain Capital Corp.

Foreign Currency Transaction Gain (Loss)

Foreign currency transaction gain totaled approximately $100 for the three months ended March 31, 2017 as compared to a foreign currency transaction gain of approximately $4,000 for the three months ended March 31, 2016.  The decrease of approximately $3,900 is related to fluctuations in the Euro exchange rate experienced during 2017 and the pricing of Altrazeal® to our international distributors being denominated in Euros.

Accommodation fee due on promissory note

Accommodation fee due on promissory note was nil for the three months ended March 31, 2017 as compared to $25,000 for the three months ended March 31, 2016.  The fee was based on a January 2016 Waiver Agreement with Inter-Mountain.  The Waiver Agreement relates to the April 2015 Note and our failure to make the installment payment under the April 2015 Note due in November 2015 on a timely basis.  Under the terms of the Waiver Agreement, we agreed to remit the November 2015 installment payment of $45,000 in cash and to pay Inter-Mountain an accommodation fee of $25,000, with the accommodation fee being added to the outstanding loan balance.

 
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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations primarily through the public and private sales of convertible notes, rights to acquire Common Stock, and Common Stock.  Product sales, royalty payments, contract research, licensing fees and milestone payments from our corporate alliances have also provided, and are expected in the future to provide, funding for operations.

Under the Purchase Agreement, at the first closing we received $500,000 in gross proceeds and at the second closing we received $5,500,000 in gross proceeds.  For more information about the March 2017 Offering, such information is available in this Report under “Item 2 of Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments”.

Our principal source of liquidity is cash and cash equivalents.  As of March 31, 2017, our cash and cash equivalents were $5,634,000 which is an increase of approximately $5,597,000 as compared to our cash and cash equivalents at December 31, 2016 of approximately $37,000.  Our working capital (current assets less current liabilities) was approximately $3,949,000 at March 31, 2017 as compared to our working capital at December 31, 2016 of approximately $(1,614,000).

Our liquidity as of December 31, 2016 was not sufficient to sustain our operations through the date of this Report.  In order to fund the Company’s operations after December 31, 2016, we issued three short-term promissory notes in January 2017 and February 2017 with purchase prices of $65,000, $30,000, and $25,000, respectively.  On February 27, 2017, each outstanding promissory note was repaid in connection with the issuance of the Initial Note under the Purchase Agreement with Velocitas.  As a result of the capital received at the second closing with respect to the March 2017 Offering, we believe that our liquidity will be sufficient to fund operations beyond 2017.

Consolidated Cash Flow Data
     
   
Three Months Ended March 31,
 
Net Cash Provided by (Used in)
 
2017
   
2016
 
Operating activities
  $ (283,000 )   $ (251,000 )
Investing activities
    ---       ---  
Financing activities
    5,881,000       1,274,000  
Net increase in cash and cash equivalents
  $ 5,598,000     $ 1,023,000  

Operating Activities

For the three months ended March 31, 2017, net cash used in operating activities was approximately $283,000.  The principal components of net cash used for the three months ended March 31, 2017 were, in approximate numbers, our net loss of $463,000, a decrease of $41,000 in deferred revenues due to amortization of revenues, and an increase of $71,000 in accounts receivable.  Our net loss for the three months ended March 31, 2017 included substantial non-cash charges of approximately $126,000 in the form of share-based compensation, amortization of patents and licensing rights, and depreciation.  The aforementioned net cash used for the three months ended March 31, 2017 was partially offset by, in approximate numbers, an increase of $51,000 in accrued liabilities due to temporary compensation deferrals and royalty fee accruals, an increase of $12,000 in accounts payable due to timing of vendor payments, an increase of $6,000 in accrued interest, a decrease of $64,000 in prepaid expenses related to insurance and listing fees, and a decrease of $33,000 in inventories.

For the three months ended March 31, 2016, net cash used in operating activities was approximately $251,000.  The principal components of net cash used for the three months ended March 31, 2016 were, in approximate numbers, our net loss of $646,000, a decrease of $101,000 in deferred revenues due to amortization of revenues, and an increase of $6,000 in inventory.  Our net loss for the three months ended March 31, 2016 included substantial non-cash charges of approximately $283,000 in the form of share-based compensation, amortization of patents and licensing rights, depreciation, amortization of debt discount, and amortization of deferred financings costs.  The aforementioned net cash used for the three months ended March 31, 2016 was partially offset by, in approximate numbers, an increase of $144,000 in accounts payable due to timing of vendor payments, an increase of $57,000 in accrued liabilities due to temporary compensation deferrals, an increase of $2,000 in accrued interest, and a decrease of $16,000 in prepaid expenses related to insurance and listing fees.

Investing Activities

There were no investing activities for the three months ended March 31, 2017 and 2016, respectively.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2017 was approximately $5,881,000 and was comprised of, in approximate numbers, the net proceeds of $5,901,000 from the March 2017 Offering and net proceeds of $120,000 from certain short-term promissory notes issued to Velocitas and Kirkwood.  The aforementioned net cash provided for the three months ended March 31, 2017 was partially offset by repayment of $140,000 the short-term promissory notes issued to Velocitas and Kirkwood.

Net cash provided by financing activities for the three months ended March 31, 2016 was approximately $1,274,000 and was comprised of, in approximate numbers, the net proceeds of $1,398,000 from the March 2016 Offering, offering costs of $14,000 associated with the acquisition of licensing rights that occurred in December 2015, and the repayment of $135,000 in principle due on the promissory note with Inter-Mountain.  The aforementioned net cash provided for the three months ended March 31, 2016 was partially offset by the increase of $25,000 in the principle due under the promissory note with Inter-Mountain relating to an accommodation fee.
 
 
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Liquidity

As of March 31, 2017, we had cash and cash equivalents of approximately $5,634,000.

We expect to use our cash, cash equivalents, and investments on working capital, for general corporate purposes, on property and equipment, and for the payment of contractual obligations.  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 look both domestically and internationally for opportunities that will enable us to expand our business.  At this time, we cannot accurately predict the effect of certain developments on the rate of sales growth, if any, during 2017 and beyond, such as the speed and degree of market acceptance, the impact of competition, the effectiveness of the sales and marketing efforts of our distributors and sub-distributors, and the outcome of our current efforts to develop, receive approval for, and successfully launch our near-term product candidates.

As of March 31, 2017, our net working capital (current assets less current liabilities) was approximately $3,954,000.  As a result of the capital received at the second closing with respect to the March 2017 Offering, we believe that our liquidity will be sufficient to fund operations beyond 2017.

In the event that we need to raise capital in the future, due to our limited revenue, we may be unable to obtain the necessary financing on terms acceptable to us, or at all.  If we are unable to raise capital when needed, we would be unable to continue our operations.  Even if we are able to raise capital, we may raise capital by selling equity securities, which will be dilutive to existing stockholders.  If we incur additional indebtedness, costs of financing may be extremely high, and we will be subject to default risks associated with such indebtedness, which may harm our ability to continue our operations.  We have no commitments with respect to additional capital.

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

§ 
our ability to successfully commercialize our wound management products and the market acceptance of these products;
§ 
our ability to establish and maintain collaborative arrangements with business partners for the  development and commercialization of certain product opportunities;
§ 
scientific progress in our development programs;
§ 
the marketing and sales efforts of our distributors and sub-distributors;
§ 
the costs involved in filing, prosecuting and enforcing patent claims and our maintenance of patent rights;
§ 
competing product developments;
§ 
the trading volume and price of our capital stock;
§ 
the actions of parties whose consents, waivers or prompt responses are required for approval of a financing (such as parties with rights of first refusal or consent rights);
§ 
our general financial situation, including our revenues, liquidity, capitalization and other factors; and
§ 
the cost of manufacturing and production scale-up.

Contractual Obligations

The following table summarizes our outstanding contractual cash obligations as of March 31, 2017, which is composed of a lease agreement for office and laboratory space in Addison, Texas and a lease agreement for office equipment.  These obligations and commitments assume non-termination of agreements and represent expected payments based on current operating forecasts, which are subject to change:

   
Payments Due By Period
 
Contractual Cash Obligations
 
Total
   
Less Than
1 Year
   
1-2
Years
   
3-5
Years
   
After 5
Years
 
  Operating leases
  $ 118,939     $ 118,939     $ ---     $ ---     $ ---  
  Total contractual cash obligations
  $ 118,939     $ 118,939     $ ---     $ ---     $ ---  

Capital Expenditures

For the three months ended March 31, 2017 and 2016, our expenditures for property, equipment, and leasehold improvements were zero, respectively.

Off-Balance Sheet Arrangements

As of March 31, 2017, we did not have any off balance sheet arrangements.

 
- 25 -

 
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.

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 utilized Bank of America, N.A. and South State Bank as our banking institutions.  At March 31, 2017 and December 31, 2016 our cash and cash equivalents totaled approximately $5,634,000 and $37,000, respectively.  We also invest cash in excess of immediate requirements in money market accounts, certificates of deposit, corporate commercial paper with high quality ratings, and U.S. government securities.  These investments are not held for trading or other speculative purposes.  We are exposed to credit risk in the event of default by these institutions.

Concentration of credit risk with respect to trade accounts receivable are customers with balances that exceed 5% of total consolidated trade accounts receivable at March 31, 2017 and at December 31, 2016.  As of March 31, 2017, one customer exceeded the 5% threshold, with 98%.  At December 31, 2016, one customer, being one of our international distributors, exceeded the 5% threshold with 95%.  We routinely assess the financial strength of our most significant customers and monitoring the amounts owed to us, taking appropriate action when necessary.  As a result, we believe that our prospective accounts receivable credit risk exposure is limited.

Concentrations of Foreign Currency Risk

Currently, a portion of our revenues and all of our expenses are denominated in U.S. dollars. We are experiencing an increase in revenues in international territories denominated in a foreign currency.  Certain of our licensing and distribution agreements in international territories are denominated in Euros.  Currently, we do not employ forward contracts or other financial instruments to mitigate foreign currency risk.  As our international operations continue to grow, we may engage in hedging activities to hedge our exposure to foreign currency risk.


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, 2016 as filed with the Securities and Exchange Commission on April 17, 2017.  We had no significant changes in our critical accounting policies since our last annual report.
 

ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to smaller reporting companies.

 
 
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ITEM 4.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended, (“the Exchange Act”)).  Disclosure controls and procedures are controls and other procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to reasonably assure that this information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2017, our disclosure controls and procedures were not effective, at a reasonable assurance level, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and is (b) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure primarily as a result of the lack of segregation of duties.

Changes in Internal Controls Over Financial Reporting

Except for the weakness in our internal control over financial reporting as described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION


ITEM 1.
 Legal Proceedings.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to us or our consolidated subsidiary or has a material interest adverse thereto; however, one or more events may lead to a formal dispute or proceeding in the future.


ITEM 1A.
 Risk Factors.

This item is not applicable to smaller reporting companies.  Information about certain risks associated with an investment in our Common Stock is found in Part I, Item 1A of our Annual Report on Form 10-K, as filed with the SEC on April 17, 2017.


ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None, other than as previously reported.


ITEM 3.
Defaults Upon Senior Securities.

None.


ITEM 4.
Mine Safety Disclosures.

Not applicable.


ITEM 5.
Other Information.

None.

 
- 27 -



ITEM 6.
Exhibits.
 
Exhibit Number
 
Description
 
3.1
 
Restated Articles of Incorporation dated November 5, 2007. (1)
 
3.2
 
Amended and Restated Bylaws dated December 5, 2008. (2)
 
3.3
 
Certificate of Designation – Series B Preferred Stock (4)
 
4.1
 
Common Stock Purchase Warrant dated March 31, 2017 by and between ULURU Inc. and Velocitas Partners, LLC. (4)
 
10.1
 
Note, Warrant and Preferred Stock Purchase Agreement, dated February 27, 2017 by and between ULURU Inc. and Velocitas Partners, LLC. (3)
 
10.2
 
Secured Convertible Promissory Note, dated February 27, 2017 in favor of Velocitas Partners, LLC. (3)
 
10.3
 
Security Agreement, dated February 27, 2017 among ULURU Inc., the subsidiaries of the ULURU Inc. and Velocitas Partners, LLC. (3)
 
10.4
 
Voting Agreement, dated February 27, 2017 among ULURU Inc., Velocitas Partners, LLC and certain parties thereto. (3)
 
10.5
 
Investor Rights Agreement, dated February 27, 2017 among ULURU Inc., Velocitas Partners, LLC and certain parties thereto. (3)
 
10.6
 
Backstop Agreement, dated February 27, 2017 among ULURU Inc., Bradley J. Sacks and Velocitas Partners, LLC. (3)
 
10.7
 
Secured Convertible Promissory Note, dated March 31, 2017 in favor of Velocitas Partners, LLC. (4)
 
10.8
 
Indemnification Agreement dated February 27, 2017 by and between ULURU Inc. and Vaidehi Shah. (5)
 
10.9
 
Indemnification Agreement dated March 31, 2017 by and between ULURU Inc. and Arindam Bose. (5)
 
10.10
 
Indemnification Agreement dated March 31, 2017 by and between ULURU Inc. and Anish Shah. (5)
 
10.11
 
Indemnification Agreement dated March 31, 2017 by and between ULURU Inc. and Oksana Tiedt. (5)
 
 
 
 
 
101.INS
***
XBRL Instance Document
 
101.SCH
***
XBRL Taxonomy Extension Schema Document
 
101.CAL
***
XBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEF
***
XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB
***
XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE
***
XBRL Taxonomy Extension Presentation Linkbase Document
 
---------------------------------------------------
 
(1)
 
Incorporated by reference to the Company’s Form 8-K filed on November 6, 2007.
 
(2)
 
Incorporated by reference to the Company’s Form 8-K filed on December 11, 2008.
 
(3)
 
Incorporated by reference to the Company’s Form 8-K filed on March 1, 2017.
 
(4)
 
Incorporated by reference to the Company’s Form 8-K filed on April 3, 2017.
 
(5)
 
Incorporated by reference to the Company’s Annual Report on Form 10-K filed April 17, 2017
 
 
*
Filed herewith.
 
 
**
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.
 

 
- 28 -





SIGNATURES

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, 2017
 
By:
 /s/ Vaidehi Shah
 
   
Vaidehi Shah
   
Chief Executive Officer
   
(Principal Executive Officer)
   
   
 Date:  May 15, 2017
 
By:
 /s/ Terrance K. Wallberg
 
   
Terrance K. Wallberg
   
Chief Financial Officer and Vice President
   
(Principal Financial and Accounting Officer)
 

 

 
- 29 -

 

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