ULURU Inc. (OTCQB:ULUR) Q1 2016 Results Earnings Conference Call May 17, 2016 9:00 AM ET
Bradley Sacks - Chairman
Helmut Kerschbaumer - Interim CEO
Terrance Wallberg - CFO
Steven Smith -
Ladies and gentlemen thank you for joining us on the Earnings Call today. I'm joined by Helmut Kerschbaumer our Interim CEO and Terry Wallberg our CFO. I will make some quick introductory remarks, Helmut will provide an operational update and Terry will then discuss the financial results for Q1 2016.
I'm Bradley Sacks, the Chairman of ULURU, but however before we get started, I'll ask Terry to read a few of the Safe Harbor language.
Good morning. This conference call will contain certain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933 as amended, including but not limited to statements made relating to future products and financial performance of ULURU Inc., expected business development, projections of product sales, plans and strategic relationships, including foreign markets and technical advances, our anticipated cash resources, our collection of receivables and our plan, commercialization of Altrazeal in a number of countries in 2016. When used in this conference call, the words may, targets, goal, could, should, would, believe, feel, expects, confident, anticipate, estimate, intend, plan, potential and the similar expressions may be indicative of forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the company's control. The company cautions that various factors, including the factors described here under as well as general economic conditions, industry trends, domestic Food and Drug Administration regulations and international regulations could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements of the company made by and on behalf of the company. Any forward-looking statements speaks only as of the date on which such statement is made and the company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement has made or to reflect the occurrence of an unanticipated event. New factors emerge from time to time, it is not possible for management to predict all such factors. Further, management cannot assess the impact of each such factor on the business for the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. These statements are subject to numerous risks and uncertainties, including but not limited to the risk factors detailed in the Company's annual report on Form 10-K for the year ended December 31, 2015, and other reports filed by us with the Securities and Exchange Commission.
Thanks, Terry. It has only been about six weeks since our last call, so my comments today will be rather brief. The topics I want to highlight are as follows: our continued focus on our cost structure, and second our international distribution network for the distribution of the Altrazeal product.
We have continually focused on cost rationalization about which Helmut will give you a little bit more detail shortly but I'm pleased to see that the financial benefits of these actions which I know we have all worked very hard on trying to achieve are evident in this quarter's results.
Related to our international distribution network, our international distributor Altrazeal AG from now I'll refer to as AG based in Switzerland has in fact filed for bankruptcy and the Swiss court [will be hunting] [ph] administrator to handle AG’s affairs. These events impacted our product sales in Q1 as we elected not to ship products to certain of the AG customers during the quarter, as there was no certainty that we would be paid.
Orders of approximately $86,000 were placed on credit hold. We are hopeful that we will soon be in a position to ship this product and receive payment from the - in market distribution agent that we will be using.
We have also terminated our license and supply agreement with AG and AG is no longer a licensed distributor of Altrazeal product. We will look to establish direct relationships with the in country distributors that were previously part of AG’s network. We await the appointment of the AG administrator and continue to monitor the situation with AG closely.
On a positive note, our plans for the distribution in Japan are nearing conclusion and we look forward to announcing our new distribution partner in Japan in the very near future.
I will now turn the call over to Helmut, who can provide a more operational perspective on the company. Helmut?
Thanks Bradley. There are a few topics I want to cover from an operational perspective. Cost rationalization, sales and marketing and new product innovation. With respect to cost rationalization, we have continued to focus on spending our money wisely and doing more with less. The results of some of these actions are evident in our recent financial results and we look to continue with these efforts.
These savings have also been achieved against substantial efforts to get Altrazeal registered for sales and distribution in various countries in South America, Saudi Arabia, Kuwait and the Middle East. Our effort in getting Altrazeal registered in new territories as soon as possible are an ongoing process and we are confident that the fruits of these efforts will be evident in the near future.
Also mentioned in our last call, it is important to repeat that up to now Altrazeal is registered and reimbursed which has meant [indiscernible] in five markets. Sales and marketing activity, signing up new distribution partnerships and stimulating demand for Altrazeal are a key focus of our strategic efforts. There are a number of initiatives underway and only last week we participated in the European Wound Management Association Conference hold in Bremen, in Germany.
The conference known as EWMA is one of the largest such events in the world and attracted approximately 7,000 participants from Germany, Europe and other international markets. As a result of our existing international network, our distributors for Altrazeal and our increased exposure from recent marketing events, we have been approached by several potential partners for the marketing and distribution of Altrazeal in new markets.
Some of the markets in Europe that we have been discussing including the Netherlands, Belgium, U.K., Sweden, Finland, Denmark and as well markets in Asia such as South Korea and Malaysia. We are focused in increasing the number of markets that Altrazeal is available in the near term. Altrazeal was showcased in one of the leading conference publications and generated significant interest from conference attendees.
We have been receiving feedbacks that the concept of extended wear time which is a featured benefit of Altrazeal is becoming more and more accepted by the end users in the wound management markets.
As the EWMA 2016 was held the same time as the German Wound Congress, the interest in Altrazeal particularly from German wound care management was very impressive. As a result of the exposure that Altrazeal has received at these new conference events held in Germany our distributor for this country is confident about increased usage of Altrazeal in the future months.
Another benefit of these two conference events has been the various meetings with our KOLs and we can expect with the upcoming months more publications coming up about the clinical and economical benefits of using Altrazeal. With respect to actual sales while absolutely necessary and prudent, there is no doubt that implementing a credit hold on sales into the Latin American market was a disappointment.
However, we are hopeful that in the wake of [AG insolvency] [ph] we will be in a position soon to release the product directly to the local market distributors and with an increased price per blister. Our plan is also to engage directly with the parties that were previously part of the AG distribution network. They have shown an interest in and experience with Altrazeal. This will take a little bit of time and effort but we will not shy away from the task.
With respect to new products, we continue to work on developing OraDisc and marrying the delivery vehicle with appropriate active compounds that we believe will be of interest to the pharmaceutical industry. Our team has identified four categories of interest for near term examination, and have been approached by other companies wanting to understand how they may incorporate OraDisc into their product pipeline.
I will now ask Terry to take us through the financial results for the first quarter of 2016 that were also contained in company's recent filing Form 10-Q. Terry?
For the first quarter of 2016, we reported a net loss of $646,000 or approximately $0.02 per share compared with the net loss of $738,000 or $0.03 per share for the same period last year. At March 31, 2016, the company held cash, cash equivalents of approximately $1.2 million compared with $180,000 in December 31, 2015.
At the end of the quarter, we announced an equity sale of $1.8 million to new and existing investors. Only $1.4 million was actually received prior to the end of the quarter with the remaining funding being received in April.
During the first quarter of 2016, our cash and cash equivalents increased by approximately $1 million. The increase for the quarter consisted of net cash provided by financing activities of approximately $1.2 million which was composed of $1.4 million from the closing of the equity sales offset by the principal reduction of $135,000 associated with our payments in cash of monthly installments due under a promissory notes with Inter-Mountain.
The net increase provided by financing activities was partially offset by net cash used in operating activities of approximately $227,000. The detailed components of these activities are shown in our public filings.
Revenues for the first quarter of 2016 were $109,000 as compared to $295,000 for the same period last year. The decrease of approximately $186,000 of revenues was primarily due to a decrease of $272,000 in Altrazeal products sales as our international distributor Altrazeal AG breached material terms and conditions of the license and supply agreement with them including provisions related to timely payment of amounts owed.
Given the uncertainty of collecting payment for any product shipment to territories previously controlled by Altrazeal AG we felt it prudent to delay product shipments to these territories until such time as credit can be established with a new licensee or direct relationships can be formed directly with sub-distributors. The revenue decrease was partially offset by the recognition of unamortized licensing fees of $86,000 related to the cancellation of the Altrazeal AG License and Supply Agreement.
Research and development expenses for the first quarter of 2016 were $136,000, including $9,000 of share-based compensation, as compared to $204,000 for the same period last year. The decrease of approximately $68,000 in R&D expenses was primarily due to, a decrease of $60,000 in direct research costs primarily related to consulting costs and product registration fees, a decrease of $25,000 in scientific compensation related to wage reductions by existing staff and lower share-based compensation. These decreases were partially offset by an increase of $17,000 in regulatory consulting as the prior-year included a one-time credit adjustment of $14,000.
For selling, general and administrative expenses for the first quarter of 2016 were $319,000, as compared to $446,000 for the same period last year. The decrease of approximately $127,000 was primarily due to a decrease of $90,000 in director fees that is composed of a decrease of $46,000 in share-based compensation and a decrease of $53,000 in cash compensation, also a decrease of $38,000 in compensation as our Interim President and CEO’s compensation is materially less than our prior CEO, a decrease of $29,000 in legal costs, a decrease of $8,000 in other miscellaneous expenses.
These expense decreases were partially offset by an increase of $25,000 in commission costs related to a two product licensing as the prior year included a one-time credit adjustment and an increase of $13,000 in bad debt expense accruals.
Interest expense for the first quarter of 2016 was $47,000 as compared to $13,000 for the same period last year. The increase of approximately $34,000 is primarily attributable to interest costs associated with our promissory note issued in April 2015.
Foreign currency transaction gain for the first quarter of 2016 was $4,000 as compared to a foreign currency transaction loss of $93,000 for the same period last year. The improvement of approximately $97,000 is related to an increase in the euro exchange rate experienced during 2016 and the pricing of Altrazeal shipments to international distributors being denominated in euros.
The accommodation fee due on promissory note was $25,000 for the first quarter of 2016. The fee was based on a Waiver Agreement completed in January 2016, with Inter-Mountain Capital Corp. that resulted from our failure to make a installment payment on a timely basis in November 2015.
That completes the review of our financial statements.
Thanks Terry. We will now answer any questions that any of you may have.
[Operator Instructions] Our first question comes from the line of Steven Smith. You may proceed.
Hi, gentlemen, a couple of questions. Helmut you mentioned the $86,000 that got deferred with the bankruptcy of Altrazeal AG, I heard you say something about it going at a higher price now that essentially there's no middleman, is that correct that when it does get shipped it will be at a higher level than the 86,000?
Correct, Steven. It's very precise. Of course Altrazeal AG had a very aggressive purchase price for the product and then based on the margin Altrazeal AG has sold on a certain net price for their distribution partners internationally and of course this margin is now automatically within ULURU.
Okay. So roughly we're looking at something like a double, something in that range when it ultimately ships or not that high.
Yes, at least.
At least a double, very good, very good. And also just a follow-up on that, I assume it shouldn’t be too long till that transaction takes place since essentially it sounds like it’s primarily a paperwork change at this point and so you have - if you are going to assume the essentially the terms that Altrazeal AG had with the end user.
Steve, I think it's going to depend a little bit on what happens with administrator and the fee.
Okay. So it’s going have to wait till there is more adjudication with that?
Okay. And you don’t have a timeframe on that at this point do you Helmut any.
No, we don’t have but of course what I want to mention immediately of course when the [indiscernible] is clear then of course obvious that we proceed on this.
Okay, fine. And my only other question just a little bit of a concern with what I would - the countries, the contracts that were held by the former Altrazeal trading. In the first quarter it seems like we didn’t have any repeat business with any of the five companies that do a fee schedules in Europe specifically Germany which is a large market. And also looking back to the Q1 2015 press release when we did 295,000 in revenues, you mentioned "that primarily reflects the significant shipment to our Middle East distributors”. Can you comment on that, you’re not seeing re-sales from the Middle East and from those entities in Europe, Spain, Italy, Portugal and Germany and Austria?
Steven, it's very precise. The situation with the reorder business is - let's say first of all coming to your first statement concerning the Middle East shipment from last quarter - last year’s quarter, first quarter. They do not have the registration yet. Also as you may remember we have had in our contract that they're obliged to purchase an order also they are not able to deliver yet.
Right. That is what I was aiming for.
Exactly, therefore of course they could not do the reorder because they are not allowed to sell. We are working intensively, really intensively right now to make - and all the team is aware about and supports us intensively to make the registration in Middle East happen because we have six, seven markets over there which could come out of registration and then being able to place the order.
Number one, number two here in European area we have simply the situation as we all aware we had - within ULURU, over the last 9 months tough times so, where we haven't supported our partner appropriately, let's call it this way, and especially EWMA has now shown the significant impact of doing KOLs presentation, KOL meeting, KOL lectures even the conference and it was that - high impact and significance that we now are convinced and we believe that now the - the German team is so happy about that support again that we are confident that this is now let’s say, getting a boost again. They have been in a kind of a defense - defensive situation right now because of the situation around ULURU. However everything is clear now and we are working intensively now on the day to day business.
Okay. So we still have [indiscernible] I may be miss pronouncing it, onboard as our distributor in Germany and they are still -
Yes, they are fully motivated right now and because of the conference has been so significant that it's really works quite well.
Okay, good. Thank you for that information gentlemen.
Thank you. There are no additional questions waiting from the phone lines.
Then everybody thank you very much for joining us on this Q1 earnings call. And we look forward to communicating with you at the end of our second quarter.
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